At first glance, the life of an NFL general manager looks pretty easy. Put the best 53 guys you can find on the field, sit back and watch the football game from the skybox every week.
How hard could it be, right?
Portfolio managers and stock analysts face a very similar perception of their jobs, and in all of the aforementioned cases … reality couldn’t be farther from the truth.
In the NFL, You’d Better Know Everything
NFL general managers have to be prepared for every eventuality that could alter your roster. If your star quarterback goes down, the coach has to throw in the backup. You need to know every quarterback in the league, which teams might be willing to trade with you, and you basically need the phone number of every QB on a practice team (or on a couch) in case something goes wrong in that all-important position.
What’s more, you need to have that same level of information for every position on the team — all the way down to special teams.
It doesn’t end there. You also have to know what college football players are coming up through the ranks, and what positions your team might be able to improve based on your draft positions. Even after the NFL draft, you have to know which undrafted players are worth the longshot invitation to camp. Not to mention which of your current football players are due contract renewals, what salary they’re looking to earn…
Information is vital, too. You have to be in constant contact with your coaches to see what they think you need to do to make the team better, as well as which football players just do not fit into the team’s plans and should be cut or traded. The information flow you have to track is enormous, and everything can change in an instant.
That laundry list of responsibilities sounds awfully similar to what you have to deal with if you’re a stock analyst or you manage a portfolio.
Investing isn’t a set-it-and-forget-it process, not even for long-term investors. You have to have a game plan and be aware of what’s going on in the world and the broader markets.
If one of your stocks misses the always highly accurate (cough) analyst estimates and tumbles in price, will you be a buyer at lower prices or a seller on worsening fundamentals? If one of your companies produces a blowout quarter and shoots higher in price, at what point do you finally cash out? If one of your stocks gets taken over, what stock will you buy as a replacement? What is your strategy if we suffer a market pullback … or an outright crash?
It’s not enough to know which stocks are in your portfolio. You also need to be aware of which stocks might eventually be in your portfolio. For example, I have about 30 stocks that meet all of my criteria for “trade of the decade” small bank stocks. About 120 meet two of my three main criteria. I’ve done the research on all of them, and I know exactly what needs to happen for them for me to finally pull the trigger.
I also keep two lists on my desk at all times.
- A list of the stocks in my portfolio, with a note of the price at which I would sell each should we get a swift run-up in prices.
- A list of stocks I want to buy if we get a sudden steep correction.
The time to load the cannons is before the battle starts. Any stock analyst or portfolio manager will tell you that when the markets are moving quickly in either direction, you want to already know what you’re buying and selling.
The general manager of an NFL team might like his current lineup, but he should always be open to ways he can make the football team better. Similarly, investors should emulate stock analysts and portfolio managers who know they can’t be complacent, and instead are always looking for the next way to improve their holdings.