What can investors learn from “March Madness?”
The past week, productivity has hit the skids as millions of Americans have focused on 94 by 50 foot hard courts around the country. What can investors learn from our annual basketball mania?
First, predicting the future is hard. All kinds of variables come into play in a college tournament. Who knew powerhouses like Kansas and Maryland would be upset by their smaller rivals? There are investment surprises every day as well, from product announcements to merger madness to new regulations. Expect—and plan for—the unexpected.
Second, upsets happen, but the odds still favor the stronger team. Kentucky is still the favorite, and no one expected Harvard to make it to the second round. (They didn’t.) Similarly, strong financials and managers usually beat shaky numbers and an inexperienced team. The race isn’t always to the swift, but that’s the way to bet.
NCAA Men’s Basketball Tournament % Wins per rank. Source: Wikipedia
Finally, there’s lots of noise out there. It’s easy to get distracted during a free-throw or when following the market. The media spend billions of dollars trying to get us to notice the trees rather than the forest. The goal in basketball isn’t to make a fancy play, it’s to get the ball in the hoop. Investing isn’t about buying winners, it’s about getting the best return with the lowest level of risk.
March madness is our annual distraction between the Super Bowl and baseball’s opening day. You may be ready to throw your bracket away, but don’t discard its lessons.
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!