Football season is upon us. For some, it makes temporary widows and for others, it creates weekends filled with ups and downs. Many folks I know also participate in Fantasy Football, a childish game that many of us "adults" take very seriously. Simply put, there is a draft or auction where participants put together a team made up of NFL players. There is a lineup requirement each week. A typical lineup might include a quarterback (QB), two running backs (RB), two wide receivers (WR), a tight end (TE), a kicker (K), a team defense (DEF) and a flex player (FLEX). I believe an investor can apply the same principle of fantasy football to their real portfolios.
Quarterback: This is your strongest thesis. Often this will be a big name or major index and run on the side of growth, but not always. If you love bonds or commodities, then you may fill that spot here, but for the vast majority, the quarterback of your portfolio is going to be something like the SPDR S&P 500 (SPY) or maybe Apple (AAPL) or an all-world, all-equity exchange-traded fund. It is a core position that won't cause you to lose sleep if your time frame is seven or more years.
Running Backs: There are the workhorses of your portfolio. Often you'll have a mix of growth and value in bigger names. One selection might come from Verizon (VZ) or JPMorgan Chase (JPM) or maybe Disney (DIS). Moving away from telecom or financial, the second name would likely be a bit more aggressive, like a major biotech ETF or Facebook (FB). Getting a little yield, plus a lot of capital growth is the goal here.
Wide Receivers: These are your big-play guys, where you'll likely find your most aggressive holding. Quite often, it is boom or bust. A correct thesis will reap huge benefits while an incorrect thesis will not get bailed out even by the most bullish of markets. I expect to see something like Palo Alto Networks (PANW), Splunk (SPLK), Arista Networks (ANET) or Methode Electronics (MEI) in this list. The second component might then include Five Below (FIVE), ZenDesk (ZEN), Alpha & Omega Semiconductors (AOSL) or even a Doug Kass favorite, Northwest Bancshares (NWBI). I would still try to diversify these a bit between aggressive growth and small value.
Tight End: A slow and plodding holding. Prefer to keep volatility lower in this area while adding yield. In the right environment, a master limited partnership or real estate investment trust could fit, although my first choice is a utility name. Perhaps Duke Energy (DUK) or Consolidated Edison (ED) would fit well, as do most utility ETFs.
Flex: This is the part of your portfolio geared specifically to age, risk tolerance and goals, as it should help smooth any weak spots above. This is open to either what you deem best or maybe one of the names that barely missed the cut from filling another position.
Kicker: We're all about diversification. In fantasy football, a kicker is a little about luck, a little about research and a little about matchups or skill. I equate this to a non-equity, non-bond position. Here we fit our currency and commodity view. It could be the dollar or the euro, or it could be gold or corn. Put simply: no equities.
Defense: Defense wins championships, although this is seldom true in fantasy football. This is about consistency with some upside. Generally, I'm thinking fixed income from bonds to converts to preferred stock. The most common fills here will be Vanguard Total Market (BND) and iShares 20 Year Treasury Bond Fund (TLT), with other consideration given to Barclays High Yield Bond (JNK), SPDR International Government Inflation Protected Bond (WIP) or iShares JPMorgan USD Emerging Markets Bond (EMB). Although it is one position, I would look to using two to four positions since it is a diverse group.
As with real football, changes will be necessary. It is unlikely an investor can sit with the same lineup month after month and year after year, but by taking a systematic, game theory approach, getting a starting point is much easier.
Putting together a "fantasy team" can extend beyond portfolios or football. A reader can do the same with the contributors on Real Money and Real Money Pro. Here's a reading lineup one might want to consider to cover the positions discussed above:
QB: Jim Cramer. You want your quarterback to be your leader and make the tough calls.
RB: Rev Shark & Doug Kass. These guys grind it out day after day and take the big hits while scoring huge winners on the long side.
WR: Bob Lang & Bob Byrne. The two Bobs probably couldn't be any different, with Lang being the big-play guy and Byrne more the disciplined route runner with good hands.
TE: Tim Melvin. All jokes aside, if you are looking for deep value and slow growers that still have portfolio-changing possibilities, then my alter ego Tim is the man
FLEX: Helene Meisler. She helps lay out sentiment, stats and their impact on the market, in addition to both long- and short-side individual stock names. This is the person who can fit into any position on the team.
K: Herb Greenberg. If there is anyone out there who can find a company about to shank one, it's Herb. His views and research are uncorrelated to the market, which is exactly what you are looking for here.
DEF: Tom Graff. Behind Jim Cramer, this is the easiest position to call. For all things bonds, QE and beyond, he's your starter.
Many other folks could step in, like Gary Morrow, Paul Price and Robert Moreno, who could easily fit into a WR spot. Bret Jensen, Gary Dvorchak or David Katz could jump into a Flex role, and Carly Garner could fill in on the Kicker side for those wanting to go commodity for diversification. The possibilities are more than I can list here. I didn't include everyone, but I've read these folks and know the quality of their work on a broader scale. And, of course, there is some bias because I've had a chance to meet many of these folks, so I've experienced their passion and brilliance first hand.
In the end, diversity in not only your portfolio but also your sources will provide the best chance to come out a winner.