Kyle Peterdy

If I told you Kendall Wright was a better fantasy wide receiver than Calvin Johnson, what would you say? Blasphemy, I’m sure.

In case you didn’t know, I’m a sports fanatic. In particular, I LOVE fantasy football. This has proven problematic in that past, however, as some people just can’t wrap their head around the idea of grown adults assembling make-believe teams of real players. We make outlandish trade offers to our friends, we pound the table at every dropped pass, and we even occasionally cheer on true rivals if one of our players is on their team.

My wife finds it insane that I track any information available in the public sphere, however innocuous it might seem to outside observers – injury updates, local weather forecasts, Tweets about players’ recent meals – you name it. If you play fantasy sports you know exactly what I’m talking about, too. People do this with companies and markets every day though – why is it so crazy to follow players as closely?

Am I merely grasping at straws to demonstrate some sanity surrounding my fantasy football addiction or is there something of a metaphor at work here? Frankly, I’d argue that having a fantasy football team is no different than holding an investment portfolio. After all, you’ve got skin in the game; you fork over money hoping your players will perform well and earn you a fat future dividend. In fact, I believe that fantasy sports offer some very interesting lessons about wealth management and personal finances.

All stats are up to the end of week 12, 2013, using ESPN’s standard fantasy scoring format.

Lesson #1 – Risk/Reward Ratio:

In stock analysis, you would use a formula called the Sharpe Ratio. It’s the expected mean portfolio return minus the risk free rate divided by the standard deviation of the portfolio. The ratio analyzes whether portfolio gains are a result of wise investment decisions or of excess risk. The higher the ratio, the less risky the investment.

In fantasy terms, you would simply divide the player’s average weekly point production by the standard deviation. As per my original statement about Megatron, using this formula you would determine that Kendall Wright is a far safer player to have on your roster than Johnson. Calvin’s mean weekly point production is 18.3 with a standard deviation of 11.3. This says, statistically, you’ve got as good a chance (about 68%) that he puts up 7 points as he does 29. Now, most people with Calvin on their squad are comfortable with this trade-off but when it comes to picking investment opportunities, this would be a really risky play. Take Wright on the other hand. His mean weekly production is 8 points with a standard deviation of 3.8. His risk reward ratio is 2.14 compared to Johnson’s 1.62. I’m not suggesting you should trade Calvin for Kendall, but if you’ve got Wright on your team, you should appreciate the fact that you can bank on his consistent production from week to week.

The real lesson here is about measurement and risk aversion. Using the risk/reward ratio may be a subpar metric when creating your draft board (though arguably useful during the late rounds), but it’s an excellent measure when analyzing investment choices. You can’t just pick high upside opportunities with outrageous variability. In fact, depending on your level of risk aversion or risk tolerance, building a portfolio with an appropriate Sharpe ratio is paramount to helping you sleep soundly every night.

Lesson #2 – Correlation and Goin’ Short:

On the subject of wide receivers, let’s stay with Kendall Wright. Clearly, a WR doesn’t work on their own – someone needs to throw them the ball. What makes Wright’s numbers all the more impressive is that he’s maintained his consistency over the course of the year no matter who is chucking the rock – Locker, Fitzpatrick, back to Locker, now Fitzpatrick again. Tennessee’s QB woes have provided the perfect platform to discuss correlation between data sets.

If you combine Locker and Fitzpatrick’s numbers over the first 12 weeks of the season and run the analysis, you’d discover that Wright’s production only has a 37.5% correlation with the QB roller coaster in the Volunteer State. That’s to say that even when Jake Locker or Ryan Fitzpatrick have a rough game, you can still expect Wright to ride out his steady production. This low correlation between players on your team is like owning stocks with a low Beta – their risk is independent of market fluctuations. This ensures a player portfolio that performs more consistently from week to week. Contrast this with A.J Green and Andy Dalton in Cincinnati – this duo’s statistical correlation is over 50% meaning that they tend to score in parallel. When Dalton tanks, so does Green (see week 4, 5, and 11).

So what? Well, let’s look at another position – RB. Some RBs have high negative correlations with their QBs – take Knowshon Moreno. His correlation with Peyton Manning is negative 50%. This implies that in games where Manning underproduces, Moreno will tend to put up better numbers. This is the fantasy football equivalent of short selling your quarterback. If you start them both you’re going long on Moreno and short Manning, effectively hedging against a weak performance by one of them.

Lesson #3 – Diversification:

So, given lessons 1 & 2, why do we still see fantasy managers roll out a QB, WR, and TE from the same team? Well, some people are risk tolerant and furthermore, the correlation rule works both ways. Peyton Manning and Wes Welker share a 47% positive correlation, for instance, so when Manning plays well it’s likely that Wes scores big (and Julius Thomas) too.

Thing is, you’d never do this with your investment portfolio. If you could only hold two stocks, you wouldn’t buy Encana and Suncor. Two energy companies is super risky, you’d want to diversify the portfolio with a telecom, some financial services, or a fixed income security to hedge your risk. How’s this fantasy relevant? After all, If you have Manning and Welker, you have 390 points through 12 weeks. Stafford and Johnson? 408.

But that’s the aggregate total. On a week to week basis, your points would be more consistent and predictable by holding players from different teams. A.J Green is a weapon – he’s averaging 12.5 points per week. You want him on your team. Thing is, because of inconsistent QB play, his risk/reward ratio is a measly 1.47 (standard deviation of 8.5). Given this, you’d want to have a QB from another team to hedge against the risk of a bad game by Dalton.

Moral:

Now, let’s be real here. Owning Megatron and Manning is like holding Google shares – you’re a happy investor. The point, however, is that careful thought goes into selecting investment opportunities and into diversifying your player portfolio – or at least it should.

The best players to hold on your fantasy squads are exactly like the best stocks to hold in your portfolio – they have high means and low standard deviations. If you have Peyton Manning, you’ve got 270 points through 12 weeks. Matthew Stafford has 225. Check out these numbers though:

Is the extra 45 aggregate points worth the weekly variability? Look how different their risk/reward ratios are. You’ve got a 68% chance that Stafford scores between 16.3 and 24.7 points. That’s incredibly consistent. Manning has more upside though – 68% chance he’s between 14.4 and 34.8.

Ultimately, it’s a question of stomach. How much risk are you willing to shoulder to get a taste of this variable upside? Hitting it big is great but high expected returns with high variability can be backbreaking in an investment portfolio. It’s definitely worth sitting down with a financial advisor before you start throwing money into the markets seeking big returns. And if you’re looking for a fantasy advisor? Shoot me an email or Tweet… I’d love to shed more light!

 @KPeterdy

Seven Key Business Buzzwords:

Some recent studies (like this) about the deteriorating career prospects of newly minted MBA grads don’t look very promising. In light of these developments I’d like to offer this much shorter and more cost-effective alternative to the traditionally arduous professional designation. Practice dropping these lines into normal conversations and you’ll have professionals everywhere convinced you’re top management material in no time.

Synergy:

Traditionally this term was a medical one. When two or more muscles or nerves act cooperatively, it’s synergistic action. It eventually evolved into the concept of a sum being greater than it’s parts. In MBA speak, however, feel free to toss this around like a piping hot potato.

Appropriate Contexts:

• “Sarah, I was concerned about undertaking this project with you but our skills are quite complementary and I feel a real professional synergy at work here.”

• You may notice some previously unbeknownst synergy with the cute new hire over in accounting after you pound too many drinks at the Holiday party.

• Some MBAs have discovered synergies between the Sake and the salmon tataki over lunch at their local Hapa.

Polished:

If you’re clean shaven, well-dressed, and you master each of these words, you’ll probably get this one a lot. Once upon a time you’d have been deemed refined, polite, well-dressed, or generally well put-together. But MBAs strive to streamline processes – why have four distinct adjectives when you can have one? A person may be all of the above but that doesn’t matter, just say they’re polished.

Clarification: 

Take it Offline:

Don’t you hate when you’re in a meeting and someone asks a question that’s important and should be addressed but it’s outside the scope of your presentation? Normal people might suggest that you simply talk about it after the meeting. Fortunately, MBAs aren’t normal people, so they take it offline.

Appropriate Contexts:

• A colleague kills the mojo of your Q&A session by inquiring about a project deadline that’s a month down the road – (Politely) “Doug, maybe we take this offline?!”

• Cynthia from marketing creates an uncomfortable silence during a client luncheon by discussing her fondness of kittens – “Cynthia I think we should probably take this offline!”

Robust:

In yester-years, a proposal that addressed all foreseeable complications might have been called hearty. A presentation that left no stone unturned was (at least) detailed. A really solid analysis could be deemed thorough. But not today. If you create something that’s destined to turn heads, it’s definitely robust.

Appropriate Contexts:

• The HR team has spent months preparing a robust on-boarding program for new hires.

• The marketing plan is extremely robust; they’ve even included a CLV investigation.

• Commonly combined with polished.

Pipeline:

And not the kind that transports West Texas Intermediate, either. You might have once referred to a project as being in the works, or perhaps you were laying the groundwork for an upcoming approval process. Not anymore, dinosaur. Any pending positive news is now in the pipeline.

Appropriate Contexts:

• So Mr. Johnson, what kind of sales leads do we have in the pipeline?

• Mike, any positive news coming down the pipeline?

• I’ve got a lawsuit in the pipeline after the company Christmas party.

Pivot:

In this context it’s not quite a dance move but rather an awkward lesson we can all thank our middle school PE teachers for. It’s when you firmly plant one foot in the ground and change directions. In business talk it means your plan didn’t work as hoped and it’s probably cheaper to tweak the design, moving in a different direction, rather than bury the idea altogether.

Appropriate Contexts:

• The new software is full of bugs so we’re going to make a pivot in our rollout schedule.

• Sean used to serve in the military; now he’s enrolled in an MBA. That’s a pretty big pivot.

• Susan, it seems I’ve forgotten my wallet – could you please pick up this tab? Sorry about the pivot.

Leverage:

Leverage is a real thing in the business world – it’s actually borrowed money. If a company is highly leveraged it means they’ve financed heavily with debt compared to equity. However, it seems this term has found its way into your standard business vernacular under its more traditional, scientific connotation. It basically suggests that you’re using one thing to get another thing. In fact, if you go a full 9-5 without using the term leverage, you definitely need to review some high school physics to brush up your B School vocab.

Appropriate Contexts:

• I’m going to leverage my experience in retail to help secure an interview with head office.

• Jordan has leveraged his relationship with the VP to move up the corporate ladder.

• Chuck pretended to be a hockey player to meet women in Boston by effectively leveraging his fake Canadian accent.

Congratulations – you’ve got the next best thing to an MBA. Now that you’re all polished go leverage your new knowledge by filling your pipeline with job leads!

~KP

It was my good friend’s father who used to say it: Write your own script; don’t star in someone else’s movie! I thought it had a nice ring, but more importantly, a great moral. As I got older, I learned to cherish the message even more – be a leader, not a follower.

My style evolved over the years though, and unfortunately, the Hollywood analogy no longer worked for me. Nonetheless, I wanted to keep the leadership metaphor alive so I retooled it a little: Don’t read the map, write your own! Think about it, we all lose our way sometimes, it’s inevitable. Our first instinct is usually to look for directions; to consult some existing framework that might help guide us back on track. But where is the fun in that? Life needs a little adventure from time to time and mine has arrived.

I used to be a high school teacher, athletic director, and lacrosse coach in the greater Montreal area. I was surrounded by culture, wonderful friends and family, and I was involved with sports every day – something I enjoyed immensely. I had a life that saw me wake every morning with a smile on my face because I was content. But contentment, I realized, is not the same thing as passion. That said, I was ready to shake things up.

When my wife got the opportunity to relocate to Vancouver for work, I was thrilled. I supported the move with all my heart, even though a nagging voice in my brain expressed the occasional objection. The move would mean giving up a very secure career and a respectable level of status in the community. We spoke about it at length but ultimately decided to throw caution to the wind. So, in June 2012 we boarded the plane, never to look back.

I expected to face some hurdles but I must admit, I didn’t foresee the black diamond mogul run that I was about to encounter in BC. I did some seasonal work for a movie company, some landscape labour, substitute teaching, and I even did a brief stint as a rig worker in the oil patch for some quick cash – all in a matter of 6 months. Throw in some health problems for good measure and you really had a guy in desperate need of a map, or more accurately, the means to draw one up.

I had long thought about pursuing an MBA but it became clear last December that it was time to take a serious look at what direction I wanted to head professionally. I knew that the MBA was an excellent way to develop skills and tools – particularly those needed to help draw maps in a world whose landscape is constantly evolving. So I began preparing for the GMAT and got involved with a local technology start up to help me cut my teeth in the business world. The rest is history, albeit history in the making.

I have been blessed with the opportunity to attend yet another world class educational institute, the University of British Columbia, and I feel privileged to be surrounded by an endless sea of intelligence, talent, and drive. It has occurred to me that no map exists to guide one from the gym to the boardroom so I take pride in the fact that I get the honour of creating it. I am sure the path will wind from time to time but that’s ok because I am also confident that the Sauder School of Business will ensure my tool belt is well equipped for what lies ahead.

#MakeYourOwnMap