March Madness is nearly upon us. Who doesn't love the NCAA Basketball Championship? It's an even bigger deal this year as last year's tournament was cancelled due to the pandemic. I still have never won with my bracket (I tend to have a Big Ten bias), but this year might be the one!
Like investing, filling out a bracket involves balancing risk, reward and expectations, and winning a pool ultimately requires a bit of luck along the way. Here are a few lessons from March Madness that we can apply to the world of investing.
Lesson #1: Forget Perfection, Position Yourself Strategically
The odds of filling out the perfect bracket are pretty low. So are the odds of timing the market correctly.
In completing a bracket, think strategically. Don't pick too many upsets. Awhile back the Journal of Applied Social Psychology published a study about NCAA tournament predictions. The conclusion—simply picking the higher-seeded team in every matchup would have outscored the national average bracket score on ESPN1.
Successful investing means thinking strategically as well. Stay disciplined and stick to your plan. Keep investment costs low, and minimize taxes when possible.
Lesson #2: Don’t Let Past Performance Dictate Future Decisions
Allowing a team’s success in the last few tournaments to influence your bracket picks is not a sound plan.
Investing based on previous performance generally leads to disappointment. It’s fairly common to see an area of the market win big one year, and underperform other areas in the following year. So stay diversified.
Lesson #3: The More You Watch, the More Drama & Emotion You Can Expect
The more you watch March Madness, the more emotional you become about the outcomes. The drama associated with the NCAA tournament is undeniable.
Watching the markets every day may be entertaining, but the more you watch, the more susceptible you are to making poor investment decisions based on emotion.
Lesson #4: Keep in Mind the Importance of a Great Coach
There’s no denying that a great coach contributes to the success of a team. Coaches can be calming and analytical during the stress filled time-out with 17 seconds left and the team down by two.
Financial advisors can be great coaches as well. A trusted partner can help you navigate difficult markets and keep a calm, steady course for long-term success. They can hold you accountable to move forward on all aspects of financial planning.
Good luck with your March Madness brackets. This might be the year my Illinois wins it all!
Shari Greco Reiches
Shari co-founded Rappaport Reiches Capital Management with one goal - to maximize the return on life for her clients. Please connect with Shari below. She loves to talk about investing, financial planning, and Barry Manilow.
The author does not intend to provide investment, legal or tax advice as these materials are for general educational purposes only. Please consult your legal, tax or investment professional for advice on your particular situation. This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. It is not intended to be a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Investing involves risk including the possible loss of principal. Past performance does not guarantee future results. Please refer to RRCM’s Form ADV Part 2 for additional disclosures regarding RRCM and its practices.