How building an NFL team well is like effectively managing a stock portfolio

The last year or so has been one of the most volatile in recent memory for stock markets around the globe. From around the Dow Jones spike of 29,000 in February 2020 to a low of around 19,170 in March of 2020 in the immediate aftermath of the COVID-19 shut downs in the US, to a current, all-time high of over 32,700 in mid-March of 2021, it’s been a wild ride. As I’ve followed the market over that period, it’s struck me how similar building a successful growth portfolio in the market can be to building a successful pro football team. This article is intended as a way to explore some of those parallels and see how well the comparison holds up.

Photo by Christian Petersen/Getty Images

Buy low, sell high

Only a day or two away from the beginning of free agency, this foundational tenet of economic markets seems appropriate to start with. One of the most important aspects of building a successful football team is optimizing value: Deploying your fixed assets (cap space, draft picks) in the way that results in the best performance return that you can get.

Concrete examples of this would be using a seventh round pick on a player like Kamren Curl, who was able to fill a starting role on his first year on the field, or signing a free agent like Cornelius Lucas to a two-year deal paying him $3.8M, when he played the first year of his contract at a $7.4M valuation.

Unfortunately, the past decade of Washington Football Team management is also riddled with cautionary counter-examples. Time after time, Washington “bought high,” and proved why doing so is such a risky idea. Whether it was the war chest of draft picks offered up for RG3 in 2012, the record-breaking cornerback contract for Josh Norman after his 2015 All Pro season, or the record-breaking safety contract for Landon Collins after his 2018 Pro Bowl season, Washington was saddled, to varying degrees, with the consequences of having made poor investment choices.

Washington’s not the only team in the league to make poor decisions like this however. The Jags signed Panthers’ guard Andrew Norwell to a record breaking deal after his 2017 All Pro season, and Norwell promptly went on to have a mediocre tenure in Jacksonville. Each year, teams buy high, when they should be buying low, or not at all.

Buying high, immediately after a player has had a top end season or performed uncharacteristically well, should be avoided. There is, of course, the chance that they’ll perform well again, but the more realistic possibility is that they’ll “regress to the mean.” That’s a fancy way of saying their great season is more likely to be an outlier than it is to be a “new normal.” They may still be good players, but the chances are, you’re going to be paying more than they’re worth. Let inexperienced buyers get sucked into those bidding wars while you seek out value elsewhere.

The key with players, like stocks, is buying when the value proposition is strongest. On low risk, inexpensive contracts or with late round picks, target players with the highest upside. If they wash out, the consequences are small. If they hit, your team (and portfolio) will see substantial returns. If they miss, the loss can be absorbed by virtue of the next tenet.

Balanced portfolio/Benefits of diversification

One of the key features of both stock portfolios and building sustainably successful teams is hedging against risk. If one company goes bankrupt or one star player goes down, you don’t want it to bring down your entire investment. One of the best ways to protect against risk is to diversify – hold a broad range of assets, often of different individual risk profiles, that in the aggregate shield your portfolio from complete collapse in the case that something goes terribly wrong.

The larger percentage of your available investment dollars (or cap space) you have tied up in any single stock or player, the more vulnerable you are to devastation if something goes wrong. If a Patrick Mahomes, DeShaun Watson, or Dak Prescott, occupying 20%+ of a team’s cap, goes down with injury, the likelihood that the season will be completely lost is fairly large. In the same way, if you held Enron stock in 2000, by the end of 2001, that component of your portfolio was essentially worthless as a result of their declaration of bankruptcy. Since childhood, each of us has been told “not to put all our eggs in one basket.” That’s good advice for football teams (and portfolio managers) as well.

Fear of missing out (FOMO)

On the eve of free agency, this is one of the most insidious of the stock market behaviors we see among football teams. “Fear of missing out” is worry that, if you don’t buy Player X now, at whatever ascending price he’s commanding, you’re going to miss the next big thing. Among investors – or, more likely, day traders -…