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.
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.
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