Fantasy Football: Hedging Your Heart

Hedging is a term that gets bandied about often without much explanation. I thought I'd take a few minutes to discuss how we can use the concept to reduce risk in both fantasy football and our daily lives.

According to Answers.com, hedging is:

A "method of transferring Risk to permit the Risk Bearer to assume two offsetting positions at the same time so that, regardless of the outcome of an event, the risk bearer is left in a no win/no lose position..."

Well that's obscure.

Let's bring it into the real world for a minute. Let's say that you have a job driving trucks and a 401(k) plan. People save for a rainy day. We expect that at some point we aren't going to be able to produce enough money by working, so we squirrel away a little each year, so when the bad times come we're still OK. That's simple enough.

So there you are driving your truck and thinking, “How in the world should I invest my 401(k) money?” Most companies give you the option to buy either their stock or one of a variety of mutual funds. Lots of people choose company stock before thinking about what is likely to be going on in the event that they need the money.

We don't all make it 30 years with one company anymore. This is not our father's economy. Layoffs happen. Let me ask you a question: do you think your company stock will be performing particularly well in the event that you get laid off?

Not likely. So there you will be with no job and considerably less of a nest egg than you could have had if you'd chosen differently. You're a truck driver, so you know that your industry tends to do poorly when the price of oil is high, and well when the price of oil is low. Oil companies also tend to do well when the price of oil is high, and poorly when the price of oil is low.

What if you bought a mutual fund heavily weighted in oils stocks instead? Then in the event that you get laid off, your oil stocks will probably be setting new record highs. If your oil stocks are doing poorly, costs are low at your company and there's plenty of work.

That's hedging.

Making sure you're in pretty good shape no matter what happens.

Now let's take the concept over to fantasy football and see how it applies.

For years fantasy experts have been advising starting quarterback and wide receiver combos. The strategy is so widespread that often in drafts people will block your attempt to put together that Romo to T.O. connection.

Maybe we should start letting these connections happen more often. With superstar players who will both be must-starts every week, these owners will be forever tied to the fortunes of one team. Sure, it looks genius when it works, but if somebody gets hurt, your season is over.

Plus, going into the draft we are much less sure of how the season is going to look than we would ever let ourselves believe. Was anybody expecting the Colts’ offense to play as poorly as it has? Or the Cardinals to be playing so well?

How many quarterbacks got picked before Kurt Warner in your league? We don't know what's going to happen, and when we load up on just a few teams we leave ourselves at risk of being broke and unemployed.

If we spread our assets around the league we give ourselves a better chance of owning a piece of that surprise offense that is lighting up the league. We know that someone will surprise us every year—we just don't know who it will be.

Can’t Take The Pain?

We can extend the concept further to hedging our emotions. This year I drafted star players from two teams I dislike very much. At least if these hated franchises have good seasons, they'll take my fantasy football team along for the ride with them. I'll be sad that these teams I dislike are doing well, but I'll be happy to win my fantasy games week after week.

Compare that to the popular strategy of drafting all players from your favorite team. When they lose, you lose. You get to be miserable about two aspects of your football life.

Tony Romo and the Cowboys were making me very happy about football until the pinkie broke. Now I'm glad Romo was the only Cowboy on my team. You can still pick guys from your favorite squad—you just don't have to go overboard about it.

Hedging requires you to look into the future and make your best guess at what the world is going to look like if we get laid off, or if somebody breaks his finger. It requires us to plan on occasionally being surprised, and make our investments accordingly.

If you're able to make emotionless decisions in a world that is quick to panic and look forward while others analyze last week, the rewards will come.