Warren Buffett is probably my favorite 83-year old Nebraska-raised investor. Top three, for sure. Really though, I like Buffett a lot, for a bunch of different reasons. One is that he plays online bridge under the name “T-Bone.” Another is that he’s worth like $60 billion and still lives in a three-bedroom house in Omaha. When he finishes a day of work, he makes popcorn and watches TV.
Buffett is also considered one of the greatest investors ever and pretty much lives by a 12-word sentence that I believe is the most basic tenet of any type of investing, even daily fantasy sports:
“Be fearful when others are greedy and greedy when others are fearful.”
Almost everything in DFS can be boiled down to that idea. Be bullish when others are bearish, and vice versa. That’s it.
Seeking more of the profound daily fantasy wisdom he gives us without even knowing it, I’ve listed Buffett’s five fundamentals of investing, taken from an excerpt of his latest letter to shareholders. Listed under each quote are some thoughts on how I think the concept can help you become better at fantasy sports.
You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”
I think one of the most difficult things to do in DFS is realize when you should be okay with assuming some risk and when you should play it safe. When the cost is high, you should play it safe. This is actually one of the reasons that I generally pay for elite quarterbacks or pitchers, even if value isn’t there in the strict sense; it narrows the range of possible outcomes.
Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake.
The value of any player—the asset—is his future “earnings” minus his cost. This quote—particularly the idea that you should avoid assets whose future earnings are basically unknowable—is related to the first point. Sometimes, daily fantasy owners want to so badly hit a home run that they’re willing to take on the unknown.
There’s a difference between known and unknown risks. I’m not at all against assuming uncertainty at times, but if you have a pretty clear idea of a player’s upside but little understanding of the potential risks, you should pay as little as possible. Take your shots on uncertainty when the cost of missing is minimal.
If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it.
Players are very much like stocks. When a player’s price rises, you might think it’s either time to “sell high” (fade) or perhaps ride the momentum and buy in before his price increases even more
It always comes down to a comparison of cost and anticipated future production. It doesn’t matter if the price has recently risen or fallen. An overvalued asset can still be overvalued even after a price drop; it will just be slightly less overvalued than it used to be.
Games are won by players who focus on the playing field, not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.
Couldn’t be more wrong, Warren. Every Saturday and Sunday in fall and winter, my ass will be glued to my couch watching “stock prices” in the form of 22 men running around on grass.
Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth.”)
This idea is very much true in the daily fantasy sports industry, where you’ll be able to find basically an unlimited quantity of horseshit analysis. I agree that most individual market predictions—as in those related to the future production of a player or position—aren’t going to beat the consensus over the long run.
Interestingly, I think this is really the easiest way for you to find value—understanding market psychology and just freakin’ running the other direction. Remember, “greedy when others are fearful”—if you’re ever unsure what to do in fantasy sports, think about what the crowd would do or what most analysts are proposing and do the opposite. Because of the way DFS tournaments in particular are set up as basically a zero-sum game of competing minds, there is monumental value in being contrarian.