NASCAR-nomics: A Long-term Investment Strategy for ESPN Stock Car Challenge

“You can’t win without adjusting to the way a game is changing.”
Matt Lessinger – Professional Poker Player

If you’ve already signed up to play Stock Car Challenge then chances are you’ve noticed that the changes to ESPN’s version of Fantasy NASCAR now require its players to know more about stock option trading than stock car racing.

The new Gen-6 COTLike the stock market, timing is everything in ESPN Stock Car Challenge.  Acquiring information, interpreting it, and revising your strategy become worthless if you don’t act decisively.  In other words, if you plan on succeeding in this complex salary cap racing game without a long-term investment strategy, you may be setting yourself up to fail.

The game’s new floating salary cap system will require more detailed risk analysis than ever before.  You may think you’re being cautious or clever, but keeping salary cap dollars uninvested, reacting to market predictions, and switching drivers based on expected performances may actually reduce your returns as a fantasy owner instead of increasing them.

Like a good financial advisor, I’m here to help you think more logically about your investment strategies by showing how some of the most common stock trading mistakes can lead to undesirable outcomes in fantasy NASCAR.

Start & Park  – The Risk of Sitting on the Sidelines

Do you think it makes sense to move to the sidelines when stocks are predicted to drop?

If your first thought is to sell to avoid a possible loss, you may need to reconsider your investment strategy.  Everyone wants to be in the right place and the right time but, if you aren’t careful, trying to time the market can have terrible consequences.

For example:

  • Predictions could be, and frequently are, wrong.

No one knows everything.

What I do know is that fantasy auto racing isn’t about how well your drivers perform – it’s about how well your drivers perform relative to your competition.

“If you don’t win in the long run, it is not because your opponents are making too many mistakes, it is because you are.”

Remember that “saving salary cap dollars” means you’re more likely to receive lower returns because you’re not fully invested in the market, and that switching investments may cause you to miss some of an underperforming asset’s best performances on the track.

  • A predicted decline might be small, which would make staying invested less costly than selling and buying.

The rules of the game and the fundamental concepts of salary cap racing are easy enough to understand:

Generation 6 COTYour team gains value when your drivers outperform the market’s expectations.  Your goal when making driver transactions is simple, buy-low and sell-high.

What isn’t obvious is that when you sell underachieving assets, you’re no longer invested in drivers who could improve your earning potential both immediately and over time.

With the new floating salary cap the game isn’t as much about picking winners and avoiding wrecks during each scoring period as it is identifying profitable opportunities and prioritizing risk.

It’s important to remember that our emotions can swing quickly from fear to greed – especially when market values are predicted to shift drastically.

  • You could sell now and miss a decline.  But if you fail to reinvest in the right assets you could miss out on a potential rebound.  

You may mistakenly switch to a driver that underperforms and lose salary cap space.  Keep it simple.  Buying and selling essentially means you have to time two decisions correctly!

Instead of trying to time NASCAR’s version of the stock market each week, you can improve your overall chances for success by applying these 3 concepts to your long-term strategy for ESPN Stock Car Challenge:

1. Evaluating your risk tolerance and selecting the drivers that fit your parameter mix.

I’ve mentioned risk a few times and I feel it’s a term worth discussing in more detail.  For purposes of this article, it is assumed that you think rationally (economically speaking) and like everyone else playing ESPN Stock Car Challenge you prefer having more fantasy racing points to less.

Therefore, your goal when selecting your 5 drivers should be to apply a long-term investment strategy that minimizes your risk and maximizes your reward by combining a diversified set of options into one optimal asset.

Whether you’re evaluating your investment portfolio or your fantasy racing team, all of your decisions are based on your understanding of, and comfort level with, the following four parameters: Upside Profit, Probability of Upside Profit, Downside Loss, and Probability of Downside Loss.

Tony Stewart causes wreck at TalladegaIn ESPN Stock Car Challenge, “risk” is the term used to express the potential downside loss of total points and / or salary cap space associated with each action you take as a fantasy owner.

An upside profit is realized when your driver’s output exceeds their market value.  A downside loss is just the opposite, whether it happens because of equipment failure, a wreck at Talladega or a just poor performance on race day.  It usually occurs when we accept undue risk or misjudge a driver’s ability as a result of our preferred parameter mix or aversion to “risk”.

2. Staying invested in quality drivers that are underperforming even when the market looks choppy.

“Missing only the worst days would raise returns, of course; but unfortunately, your chances of missing the worst days are especially low if you sell when stocks have already dropped…” – 3 Signs You’re Trying to Time the Market

This one isn’t a no brainer.  It’s kind of like choosing a check-out aisle at the grocery store or changing lanes on the highway to get home faster.

Slow and steady wins the race.

Staying invested in underperforming stock options may feel illogical and make some investors very uncomfortable but the reality is, in terms of the stock market, the average rate of return has been 6.3% over the last ten years.

The same concept applies to salary cap sports.  Despite all of the uncertainties, the right approach isn’t to think in terms of “missing the worst days”, you have to design a long-term strategy that fits your parameter mix and prepares you for the future.

3. Rebalancing your racing organization as needed.  This generally means buying investments that decline in value.

The only thing that is constant in fantasy NASCAR is change.

You’re going to have to stay flexible as the Sprint Cup drivers and their crew chiefs adapt to the new G6 cars.  Fuel mileage calculations, tire changes, and track-bar adjustments have added significance as teams search for the perfect setup.

G6 Testing at DaytonaRemember that these guys are going to make mistakes – and so are you!

You must remain confident and poised, and never let luck’s short-term effects delude your perception of your own abilities.  Like a winning Sprint Cup team, you have to learn how to adapt to change.

You can reduce your risk and avoid losing salary cap space at the beginning of each segment by investing in the drivers from the sport’s top racing programs.  Spreading your drivers out across the 3 manufacturers and selecting at least one driver from Hendrick Motor Sports, Roush-Fenway Racing, and Joe Gibbs Racing may reduce some of the uncertainty associated with the transition to the new cars.

As each segment progresses you’ll develop a feel for the racing programs carrying the most momentum by comparing current driver ratings to past track history.  You can also depend on sites like Jayski.com to find event schedules, testing data, and qualifying results.

Be selectively aggressive with your transactions and try to increase your team’s value each time you change drivers.

Look to add top-rated drivers who might be underperforming because of a few unavoidable wrecks or mistakes on pit row.  When in doubt try to align yourself with the drivers and organizations that have the resources to quickly overcome adversity.

Making the Right Moves

“Knowing the right investment moves can help turn risk into opportunities.  But the wrong moves at the wrong times can be risky and reduce your chances or success…”

Kate Warne, Ph.D., CFA Investment Strategist

Running a successful fantasy racing organization requires constant learning, immense focus, innovation, and intuition.  You must think in terms of probabilities and trade drivers only when you have an edge.

You can help reduce your risk and improve your chances of success in ESPN Stock Car Challenge by investing in quality drivers, adopting a long-term perspective, and staying diversified.

For more help reaching your long-term fantasy NASCAR goals, please check out my Top 25 Drivers for 2013 on ifantasyrace.com.

You can also join this free Fantasy NASCAR Fans Community if you have any questions or need any additional help.

Thanks for reading!

I really appreciate it when people post insightful comments.  Feel free to let me know if my advice is worth a damn or not on Google+ or Twitter. Best of luck in 2013!

References:

“3 Signs Your Trying to Time the Market” – Kate Warne, Ph.D., CFA (Edward Jones Perspective Feb. 2013) Page 1, 2

Advertisements