The NFL draft is a lot like stock trading. Teams must evaluate players and make an educated decision based on potential. Sometimes they pay off and other times they result in complete busts.
With the event just a little over a month away, I came up with a list of lessons we can draw from the NFL draft and use in our own stock trading.
1. Not Every Pick Will Pan Out, But Winners Shine
Every year the highly anticipated event in the draft is who will be the number one pick. A decision that could rocket your team into a Super Bowl contender or have your team revisiting the top pick in the draft for years to come.
Over the last 20 years, only 9 number one picks have made the Pro Bowl and 6 of those have won at least one Super Bowl. So out of the 20 picks only 9 could be deemed individually successful; however, 6 of those players accounted for 9 of the 20 Super Bowls that took place during this time.
Just like stock trading, the odds of making every trade a profitable one is not likely, but our gains should ultimately outweigh the plenty of losers we may come across.
2. Speculation Can Be Rewarded
Whether it’s Brett Farve or Tom Brady, it has been proven that gems can be found outside the 1st round of the draft. While the odds of these picks even making the team are less likely, proper due diligence, a chance, and a little bit of luck can sometimes make us look like a genius.
Just like stock trading there are several garbage stocks we must go through. Some are just that garbage, while others have some potential. If you can dig through the junk and look for those characteristics of a winner, then speculation can be eventually be rewarded.
3. Best Of Breed Isn’t ALWAYS The Best
It’s amazing to me how an award given to the “best college player” doesn’t always pan out for the winner to be successful in the pro league. Over the last 20 years, only 2 Heisman Trophey winners have won a Super Bowl and 6 have made the Pro Bowl. A surprisingly lower statistic than that of the overall number 1 pick.
In fact, many of these “best college players” were not starters, couldn’t even make their NFL team, and/or were only in the league for a couple years.
This same notion can be carried over into the stock trading world. Just because something is a great company doesn’t make it a good stock to buy. While Microsoft may be a huge company with a lot of exposure, in today’s market it doesn’t really return anything on your investment.
4. The Team Is Only As Good As The Management
There are a handful of the same teams with one of the top picks every year. You will also see teams drafting for positions they don’t need to or just making bad decisions.
The point is if you can’t put together a good team, you will never win. The same goes for your own portfolio. If your portfolio is full of speculative stocks, junk stocks, or just one stock, the odds of you coming out on top is pretty hard to do, regardless of the “talent” you may have acquired.
5. Be Safe. Take A Lineman
In the NFL draft, skill positions like quarterbacks, running backs, and wide receivers are considered the more riskier bet, while lineman are considered the safe choice. Not only is it easier for lineman to translate their game into the pro’s, but they also cost less than that of the skill positions.
The same goes for stock trading. Those more prudent traders will be more likely to take the “safe” stocks, stocks that don’t fluctuate up and down to quickly or sporadically, while tossing in some “skill position” stocks into the portfolio.
6. Injuries Can’t Be Avoided
Sometimes NFL teams do all the right work, great research, and make the right decision, but the one thing you can never avoid are injuries. It happens and there is nothing you can do about it.
In stock trading the same thing can happen. You do all the research, have all your price points situated, and the stock is actually a good trade, but some unforeseen event happens, which completely washes out the trade.
Question – What are some other similarities we can take from the NFL draft?