It's fantasy football time in America, and you may think the skills of that peculiar game that grips this country right about now every year may be a total waste of time. You may believe there is nothing to be gained by figuring out who to draft and how high they should go.
And I can tell you, on a quiet day like today, you couldn't be more wrong. The lessons and disciplines of the typical league are demonstrably useful when you are picking stocks, and we are going to learn why.
First, how do I know this? Is it because I have two Super Bowl rings in the oddly named Mad Money Schlumpadicka league? Is it because I am obsessed with fantasy to the point where I often confuse it with reality?
It's because I used it successfully at my old hedge fund to learn about new stocks that had come public so we all had a facility with them. We would put a slew of stocks on the board and you had to pick them with imaginary money so you could learn more of what they do and how they trade. It was a fabulous lesson and one I suggest you perform if you are just starting out or if you want to start becoming a home-gamer with some spare cash, only after you have committed enough of your savings to index funds.
Remember our rules. My show is called Mad Money and it is Mad Money that goes into stocks. They can't be your bedrock for savings for school or retirement. That has to be index funds. There are too many risks with stocks. However, that spare cash can turn into marvelous gains if you pick the right stocks, but you have to know them first.
I always loved it when people at my hedge fund had to explain why they picked the stocks, why they paid so much, and what the catalysts were for buying.
Admittedly, those aren't exactly analogous to fantasy unless you are willing to argue with the terrific people who rule fantasy at ESPN or the incredibly good NBC Sports Rotoworld Fantasy Football Draft Guide.
But in an era where so many people buy stocks online and don't interact with a broker, I find that one of the worst pitfalls out there is the uneducated buyer of a stock, as measured by an inability to articulate why someone is buying it other than it is going up.
I mean, how many people who own the red-hot stock of Nvidia (NVDA) really know what it does? My trust's biggest worry as a shareholder is not many, and those kinds of shareholders are sloppy renters who run out on the real owners, leaving the stock in disrepair on the first hint of bad news.
And how about if you want to play fantasy with a traditional two running backs, three wide receivers, one tight end, one quarterback, a kicker and a defense? I find this breakdown to be incredibly instructive because it is the key to having a diversified portfolio.
Or think of it this way. We all love high-flying wide receivers who can jump over cornerbacks. But you can only play three, which definitely inhibits owning all the FANG stocks. However, those are certainly a place to go. The good thing about playing fantasy with stocks? FANG will most likely go off the board first, forcing you to find other stocks with mojo. May I suggest, of course, the aforementioned Nvidia as well as Adobe (ADBE) or Salesforce.com (CRM) . Obviously, Tesla (TSLA) will be picked high because anyone who has driven one or owns one is going to pick it. Later-round picks like Lam Research (LRCX) , Activision Blizzard (ATVI) , Service Now (NOW) and Broadcom (AVGO) could be real sleepers.
I don't agree with the long-held notion that you should pick a quarterback in the later rounds because there are so many of them. I don't believe that because if you can get Green Bay's Aaron Rodgers or, of course, the ultimate gold standard, Tom Brady, you can't pass them up.
In the stock world, there's only one QB worth taking so early and that's Apple (AAPL) . It's been a standout underrated performer when it comes to how cheap it is. It's not a high flyer as it has too low a price to earnings multiple. That's because it is a consumer products company with amazing technology and customer satisfaction. Every other quarterback in the stock world does very little for me. Candidates for picking, though, would be Visa (V) , MasterCard (MA) , Johnson & Johnson (JNJ) or McDonald's (MCD) -- which actually can scramble -- and of course, market leader Boeing (BA) .
Running backs need to be bruisers who can go the distance and not get hurt midseason. To me, that means DuPont (DD) -- you get a handcuff with Dow (DOW) on that -- Microsoft (MSFT) , which is just a total workhorse, and Caterpillar (CAT) , which some might think could be too risky because of the need for worldwide growth, but I say CAT's got a fabulous line in front of it and everyone else in its category is a running back by committee, so I say no go.
I like tight ends who can block and catch, the Gronks of the world. They are hard to find. I think PepsiCo (PEP) can do both, as can JPMorgan (JPM) , United Technologies (UTX) , 3M (MMM) and Honeywell (HON) .
Funny, there was a time when GE (GE) or IBM (IBM) or Home Depot (HD) would have been naturals for quarterback or tight end. These days, though, I am not drawn to buying players that Warren Buffett is trading, which is the case with GE and IBM. Home Depot is like drafting from the Jets or Cleveland, two teams that look like retailers that have been run over by Amazon (AMZN) .
Defense is so easy it is ridiculous. You can pick up Lockheed Martin (LMT) -- my favorite -- or General Dynamics GD or Raytheon (RTN) -- a lot of pick-sixes expected there -- Northrop Grumman (NOC) , L3 (LLL) or sleeper stocks like Kratos (KTOS) that we liked back in the combine.
Kickers? Let's see who is reliable. Who isn't rattled by the gurus who say "sell everything" or the hedge funds that shed stocks this quarter, someone who's talked about endlessly, but for all we know they were picked right back up on waivers.
I say go with United Health (UNH) , which actually benefits from Washington turmoil, Travelers (TRV) , which is playing it real safe, Coca-Cola (KO) and American Express (AXP) , which had a couple of off seasons but seems very much on track. Guys who just want to be sure the extra points are made and want reliability from the 40, go with American Electric Power (AEP) or Dominion (D) .
Of course, there are tons of stocks that I have left out, but I wanted to give you the lay of the land about who fits in where and why and how fantasy enforces diversification by needing all sorts of positions and not just a team of wide receivers.
Notice, as I mentioned, there is no need to pick a retailer beyond Amazon. I don't like picking even the good ones from bad teams. How about the oils? They are physically unable to perform. In other words, stay away.
One thing I have learned from my years working with ESPN's Adam Schefter on fantasy, perhaps the greatest reporter -- not sports reporter but reporter -- is that you might not want to double down on a player from your home team because a defeat is doubly bad and ruins the whole weekend or worse if it is a Thursday night game, so I would have to pass on Comcast (CMCSA) , but I think it could make a fabulous quarterback with which to anchor a team. And you can never have too many running backs, so consider a Clorox (CLX) or a Verizon (VZ) or an AT&T (T) if you want red-zone players. (Nvidia, Activision Blizzard, Broadcom, Apple, Dow, PepsiCo, GE and Comcast are part of TheStreet's Action Alerts PLUS portfolio.)
Look, it's possible to go on and on, but may I suggest that before you even buy a stock, you see if you have too many draft picks from one position, especially wide receiver. You could get days like last Thursday where you are totally trashed and put up no points, and that's enough to drive you out of the fantasy league of football or the actual portfolio league of stocks any time.