Momentum Investing
If you ask an investor (or someone who reads Wikipedia) to explain ‘momentum investing’ in a single sentence, you’ll get something like this: Momentum investing is the practice of investing in assets that have recently appreciated in value.
Why would people with their wits about them — especially if they know that value investing is consistently profitable — invest in assets that aren’t inexpensive?
There are a few reasons.
Firstly, money can be made in lots of ways. [Insert here some quotation from the Hebrew scriptures.] Know what I mean?
Secondly, even if the price of an asset has recently appreciated, that doesn’t mean that the market value is anywhere close to the intrinsic value. It just means that the asset can’t be acquired as cheaply as it once could. Vast profits can still be made via assets that are more expensive this week than they were last week.
Thirdly, if an asset has appreciated in value recently, that might mean that the market is ‘on’ the investment. The market knows about the investment and will continue to drive up its price. The upshot is that the investment won’t be a value trap that takes forever to return a profit. The market itself (in theory) indicates that the investment is investable: There’s a reason for the asset to appreciate in value.
This probably isn’t a surprise, but I think that some principles of momentum investing can be applied to daily fantasy sports.
One-Month Salary Change
For our purposes, one-month Salary Change is a good means for tracking price movement in NFL DFS.
Do NFL players whose DFS salaries have increased over the last month represent good investments?
Let’s use our Trends tool to find out, and let’s look specifically at DraftKings quarterbacks.
Step 1: Projections > Proj Pts > 5 to 27.5
This screen essentially eliminates backups from the cohort. This +2.09 Plus/Minus is our DK QB baseline.
What happens when we look at DK QBs who have experienced a positive Salary Change over the last month?
Step 2: Fantasy Month Filters > Month Salary Change > 100 to 3,200
As a cohort, the ‘Momentum DK QBs’ have a lower Plus/Minus, less Consistency, and higher ownership than average DK QBs. They are worse in almost every way.
So much for momentum investing, right?
An Early-Season Angle
I have a theory.
Throughout the season, especially once the season is no longer young, many instances of upward Salary Change will be due to randomness and recency bias.
At the beginning of the season, however, it might be possible — perhaps even likely — that upward Salary Change is a sign of the market ‘correcting’ itself. Maybe a QB was priced way too low to open the season, and in this instance his salary’s upward movement actually signifies momentum. It has less to do with the vagaries of the market and more to do with the clear value inherent in the asset itself.
Let’s think through this process. Week 1 salaries are released about a month before the regular season starts. On DK at least, Week 2 salaries are released even before Week 1 action is complete. Week 3 salaries come out before Week 2 is completed and so they’re based primarily on 1) preseason assumptions and 2) only one 2016 performance.
So the salaries for Week 4 are the first of the season in which we have multiple games taken into account.
After Week 4, once salaries have started to settle, a quarter of the season has been played, and the DFS platforms and players have a stronger sense for the season, I imagine that price changes might be less reasoned.
Thus, my theory is that (perhaps) Week 4 is the optimal week — or at least a decent week — for momentum investing in NFL DFS. Or, more precisely, an NFL team’s fourth game of the season could be a good contest for targeting players with elevated salaries.
Am I correct?
Step 3: Time Filters > Game Number > 4 to 4
The sample is small, but . . . yeah. With comparable expected points and identical ownership, these early-season momentum QBs have historically outproduced the average QB whose salary has risen.
But still the question remains: Is Game 4 the best for momentum QBs?
In the words of first Magneto and later Professor X, “Why do you ask questions to which you already know the answers?”
Yeah, it’s the best. Game 8’s +5.67 Plus/Minus is really close, but in general the production we see in Game 4 dwarfs that of all other games.
What Does This Mean?
This trend doesn’t mean that you should invest your entire bankroll in Cam Newton, Matthew Stafford, Trevor Siemian, and Dak Prescott this week.
The trend does, however, suggest that at a minimum you shouldn’t avoid these QBs merely because they are more expensive now than they used to be. It also suggests — but doesn’t prove — that they are likely to be undervalued this week, even with their recent collective Salary Change.
As investable assets, they (perhaps) have the benefit of momentum.
