March Madness – Lessons for Investors

Investing is More than a Game of ChanceWell, March Madness is upon us and for the next 3 weeks, college basketball will permeate every form of media imaginable. An interesting aspect of March Madness is the office pools where everyone predicts their winners and losers. In that respect, it’s a lot like the stock market and there are plenty of lessons here to help us become better investors.

 

More than a Game of Chance

As the father of a former college basketball player, I pay a bit more attention to March Madness than some. I take particular interest in the selection process itself as it melds what is termed “the eye test” with reams of hard data on the various teams. This is analogous to investors trying to decide which stock, or which mutual fund to choose. Some “look good” but don’t hold up to scrutiny.

What is missing, of course, from March Madness is the market mechanism. This collective participation by literally millions of people each day is what makes the stock market a lot different than the grouping of 64 (68 counting the “play-in” teams) making up the NCAA basketball tournament. The market is much more than a game of chance. Stocks represent the core of capitalism, a way for firms to trade a piece of ownership in return for investment dollars.

Almost every year, with the data and the odds stacked against them, a “Cinderella” team or two will advance in the NCAA tournament even though no one thought they would. This underscores the futility of predicting the future. Remember, there is no such thing as a future fact. What has yet to happen cannot be proven.

 

Stay in the Game

Unlike March Madness where everyone is concerned about picking the winner, the asset class investment philosophy that we utilize doesn’t depend on “out-guessing” or “out-selecting” to succeed. There will inevitably be times where some asset classes over achieve and others under achieve. The key is to be diversified, keep costs low and above all else, stay in during good and bad times. You have to actually play the game to win.

Enjoy the games! Ready for a real conversation?

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