The Business of Fantasy Hockey Part III – The Psychology of Crowds

Jeff Angus

2010-08-04

Following the Crowd

 

In the first two parts of the Business of Fantasy Hockey series, my co-author for this article series (Mike Colligan) and I have focused on the business principles of Value Investing (Part I) and Intrinsic Value (Part II). In today's instalment, we focus on further defining the meaning of Intrinsic Value and how it relates to fantasy hockey, and specifically how to correctly value players. The topic is the Psychology of Crowds, and I guarantee you will come away a smarter fantasy hockey poolie after reading this.

Part I defined the term of value investing as "the strategy of selecting stocks that trade for less than their intrinsic values. Value investors actively seek stocks of companies that they believe the market has undervalued. They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond with the company’s long-term fundamentals. The result is an opportunity for value investors to profit by buying when the price is deflated."

In Part II, we focused on the first half of that definition and described how a poolie would go about processing intrinsic valuation and applying it to fantasy hockey.  Without an understanding and a good read on a player's intrinsic value, it's impossible to recognize if a player is undervalued or overvalued by the market (your league).

This week's instalment will focus on the second half of the definition, specifically investigating why the market overreacts to good and bad news in fantasy hockey which results in market price movements that do not correspond with a player's long-term fundamental value (intrinsic value). This creates the classic buy-low or sell-high opportunities that can separate your team from the pack if you’re able to successfully identify them.

Today's Topic: Psychology of Crowds</