While it may seem unlikely that football could provide insights into investments, Ammaara Mowzer reveals the striking parallels between Fantasy Premier League and investing.
With the 2024/2025 Premier League season well underway, millions of football enthusiasts and aspirant managers are going head-to-head in the Fantasy Premier League (FPL), an online football game where participants are given an imaginary budget of GBP100 million to create a team of players from the English Premier League; they then accumulate points based on the players’ real-life performances. Participants around the world meticulously construct and tweak their teams week after week in the hope of gaining a competitive edge in their mini leagues and positioning themselves for a successful season.
One of the most important principles of FPL is having a well-defined process. Aimlessly playing the game each week without a strategy will most likely leave participants (known as FPL managers) in a suboptimal position. In the months leading up to the first kick-off, FPL managers do their research: They deliberate over their starting 11, examining player statistics, costs, past performance and the level of difficulty of upcoming fixtures. These details are critical to establish a strong foundation for the FPL season.
The same goes for investing. Before starting your investing journey, it is essential to conduct thorough research of potential investment managers and the unit trusts they offer, and to have a clear idea of your investment objectives, time horizon and risk tolerance. This forms the basis of choosing investments that will help you achieve your long-term financial goals.
Laying the proper groundwork is one of several lessons that investors can learn from FPL. A few more follow.
Diversification is key
FPL managers may be inclined to fill their squads with players exclusively from the top teams such as Liverpool, Manchester City and Arsenal, hedging their bets on the high probability of these teams winning their matches. However, FPL points are awarded to individual players, not teams. Therefore, a better strategy is to select high-performing players from multiple teams across the league to spread risk and improve the odds of gaining points. As the adage goes, “Don’t put all your eggs in one basket”.
Similarly, in investing there are various ways to diversify your portfolio. You can adopt a “building block” approach by investing in various funds, each focused on a single asset class – like an equity fund, bond fund or money market fund – thus creating a diversified portfolio, which could also include offshore exposure. When one sector or region is performing poorly, you can earn return from another. Maintaining a diversified portfolio lessens the impact of poor performance from any single stock, sector or region.
However, building your own well-diversified, multi-asset class portfolio that aligns with your objectives and effectively balances risk and return can be a complex task. A better strategy could be to rely on your portfolio manager to take responsibility for the asset allocation. An example of this approach is to invest in a multi-asset class fund like the Allan Gray Balanced Fund, where our portfolio managers determine how much of the portfolio to invest in each asset class. They select a diverse mix of local and offshore assets, including shares, bonds, cash, commodities and property, modifying exposure over time to maximise long-term value by balancing risk, return and capital growth.
Diversification therefore helps you to spread risk and maximise the growth potential of your investments.
Emotions can cloud your judgement
Investing, like FPL, can elicit emotions such as stress, excitement, fear and anticipation. In both spheres, it is important to temper your emotions to prevent them from adversely impacting your outcome.
In FPL, managers experience excitement when they perform well and may become overconfident or complacent. Conversely, emotions like fear could cause managers to opt for a different strategy each week, resulting in a lack of consistency and haphazard adjustments to their teams. Despondency is common, with some managers abandoning their efforts altogether and consequently ending up at the bottom of their leagues.
Investors are faced with similar circumstances. They are delighted when their investments perform well and may overestimate their investing skills or take undue risks. In times of market turbulence, however, stress and fear prevail, resulting in knee-jerk short-term decisions – such as derisking or disinvesting at an inopportune moment – which may lock in losses and hinder long-term success.
In both FPL and investing, research and rationality should inform your decisions; it is wise to leave emotions at the door.
Biases can create blind spots
FPL managers often succumb to biases, like choosing players from the team they support and overlooking players from rival teams – a form of confirmation bias – potentially sacrificing significant points. Similarly, investors may be biased towards certain assets or industries instead of basing their decisions on facts. They also fall into behavioural traps, like following the herd, to secure popular investments. Herd behaviour can result in rapid and erratic asset price changes, leading to market bubbles and crashes.
Another example relates to FPL managers panicking and impulsively selling players who are performing badly and buying them if they are doing well. Unnecessary excess transfers result in point deductions, which could reduce overall points. This is comparable to loss aversion, a behaviour often exhibited by nervous investors who act irrationally, selling off investments during times of volatility and locking in losses.
In both realms, cultivating discipline and resilience will stand you in good stead.
It pays to play the long game
At the beginning of the FPL season, managers are awarded a “wildcard” that they can use at any time to change their team at no cost. In investing, there is no option of a wildcard. It is therefore crucial to make calculated, research-based choices that advance your long-term financial goals.
If you feel like you need personalised advice, it is worthwhile appointing an independent financial adviser to help navigate your investment journey.