Last year I played NFL DFS (Draft Kings) for most of the season.  For those of you who don’t know, you just try to pick the best lineup with a given salary cap.  The players all essentially have vegas lines (pricing) finely tuned for recent trends and team/player projections.  The probabilities of an outlier upside performance is usually priced in.

If you can pick the best player that relatively few people like, you have a huge advantage.  Outside factors we can’t control determine if you’re successful or not.  It sounds a lot like markets, doesn’t it?

Let’s use last week as an example.  Tarik Cohen burst onto the scene out of nowhere recording a stellar performance.  Nobody really knew about him, so he was not only a low salary, but low owned.  The %’s are how much he was owned is various tournaments.  This guy gave the few players that played him tremendous leverage as there was not a single better point per dollar play on offense.

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Now consider the opposite scenario, last week about 25% of lineups included Le’Veon Bell.  He had a terrible performance recording a low point total with the highest salary out there.  That popular idea with a salary based on previous performance put a lot of lineups at a severe disadvantage and those who didn’t play him at an advantage.

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One thing that is often forgotten in markets is we are competing against each other.

To make any money, we have to be right when THEY’RE wrong – Ray Dalio

Avoiding these Le’Veon Bell type situations where we take a big hit with the crowd is VERY important to maintaining a psychological edge over the competition.  If we get caught up in the emotional whims of the crowd, we are the crowd.

So what is leverage in markets?  Here are a few examples:

  • If you find a market few people like OR people are positioned heavily the other way, you have leverage.  We’re not able to clearly see it, but it’s there.
  • If you find a popular and extended market that you don’t like much, that is leverage.
  • If you find a small stock with volume expansion and a great chart that nobody is even aware exists.  Again, that is your unseeable leverage.
  • If you can develop your own system and a unique way of thinking, that is leverage.

Trade ’em Well