PORTFOLIO POINT: Investors can learn a lot from AFL player selection processes when creating their share portfolios.
If you, like many Australians, will be putting aside any other potential activities or obligations this long weekend to find a spot on the couch and watch your footy team play (and hopefully lose to my team, the Eagles), then chances are the volatility of the stock market will be pushed as far as possible from your mind.
Indeed, for most people, the weekend is a respite from the 'real’ world, and the success or failure of one’s chosen football club is something far better understood and intuitively felt than the comparatively cold and confusing face of the market – opening siren means closing bell.
But, for one man, Sam Fimis, the two passions share an obvious connection that can create a window to investing for those who might prefer a more familiar way of looking at things – that is through a filter of white lines and goalposts.
Fimis is a private client adviser with Patersons stockbrokers in Melbourne, and has just released a unique guidebook to investment strategy: Premiership Portfolio. The aim is to give an introductory course in the ASX and picking stocks, through the lens of an AFL list manager and recruiter.
The more you think about it, the more parallels can be drawn. Starting with the idea that stocks are like footy players, then it makes sense that some are healthy, some suffer surprise injuries, and there will be young up-and-comers as well as old and reliable defenders. Players hit patches of form, and occasionally put in breathtaking star performances, while others languish and never quite live up to draft potential (as both Melbourne supporters and Myer investors would be well acquainted with).
Fimis suggests looking at a portfolio like a well-managed team – with 40 or so fundamentally strong performers that can be rotated in and out of a team of about 18, depending on technical 'form’.
Perhaps the most important comparison of all, though, comes from how recruiters assess players – the selection of the stock.
“When I initially put [the book] together, I thought it was just going to be a plain analogy. But then when I interviewed recruitment managers – Brad Lloyd at Fremantle, Barry Prendergast at Melbourne and Cam Joyce at North Melbourne – I actually started to realise that there was quite a strong connection between the way they go about recruiting players and the way we go about recommending stocks to our clients,” Fimis says.
“What they use is 'player ranking systems’ – so they might allocate a score to kicking efficiency, or the handball-to-kick ratio, and they come up with a ranking for the player so that when it comes to the draft, they know who they’re going to [take].
“With us, we use fundamental analysis,” he says. “What I did was create the 'ASX draft camp’. So first you put stocks through a medical examination, analysing their balance sheet; then what I call the 'meet-and-greet’, where the players might have a chat with the coaches and you research the management group and the other stuff you can’t measure; and then the skills test, where you put them through fundamental ratios.”
Fimis says the idea first came to him while trying to explain the basics of the stockmarket to North Melbourne captain Andrew Swallow, when he thought to use some football analogies to make the process easier to relate to.
The use of statistics in sport to gain a competitive edge has gained some pop culture traction recently thanks to the success of Moneyball, a book by Michael Lewis, and later a film starring Brad Pitt, about how the Oakland Athletics baseball team selected players.
Fimis says he came late to the 'Moneyball principle’, and there are parallels with his book, but he agrees it can be tough out there for the smaller investor.
“I think, with small investors, the way they might get ahead of everybody else is by not abiding by all the rules, such as diversification, but then that leaves them with a much riskier proposition,” he says.
“You do, unfortunately, like everything else, have to put in the hard yards and build a portfolio.”
Fimis says this diversification aspect works a lot like player positions and balance in a footy team.
“I argue that people should put pride in their watch list, just like a team puts pride in their playing list,” he says.
“You’ve got a list of fundamentally healthy stocks; it’s just trying to grab stocks that are in form. And with that you have to diversify as well. The example I use is the Champion Data ranking, where a few years ago the top 25 [AFL players] were all midfielders. Now, if they were ever to take the field as a team, as good as they were they would struggle – because there’s no full back, no full forward.”
This approach and analogy may not work for everyone, but Fimis says he hopes it’s a tool people can use to think about the stockmarket in a more accessible way.
For those who are dying to know, Fimis is a Carlton supporter himself – a team that, like the ASX this year, had some great early form and has since been very disappointing – but he’s so into his football this is hard to hold against him. And while the West Coast may be firmly at the top of the table (and leading economic growth) at the moment, teams must be managed and balanced for potential.
And just as a football team puts effort and research into the best players on the field each season, investors are always looking for the next Gary Ablett or Chris Judd of the ASX. The market may be in turmoil, and the future may be uncertain – but there’s footy on this weekend, so it might be OK after all.