How March Madness Is Like Investing
March Madness is nearly upon us, and as many of us know, the season highlight for college basketball fans is often full of upsets, underdogs and blowouts. 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 scarce - so are the odds of consistently selecting prime investments within the market. This can make the process of approaching March Madness, and investing, fairly daunting.
Successful investing stems from focusing on what you can control. That can mean building a portfolio that is positioned to maintain return premiums, such as size, value or profitability that can improve risk-adjusted returns. Additional areas that are also within your control include asset allocation, keeping investment costs low, minimizing taxes and more.
Lesson #2: Don’t Let Past Performance Dictate Future Decisions
Similar to allowing a past team’s success to influence your bracket picks, investing based on previous performances will generally only lead to disappointment. As an investor, you should never assume that your “best pick” from the past will act similarly in the near future.
It’s also important to keep in mind that luck can often play a role in the success of one’s season. While your bracket pool, or asset managers, might be skilled, it may be hard to tell if it’s that skill or luck that helped them do so well. It’s fairly common to see funds that have outperformed in a certain amount of time proceed to underperform in the following period.
Lesson #3: The More You Watch, the More Drama You Can Expect
Just like watching a clock tick slowly as you wait for a profound moment or event to take place, the more you watch March Madness, the more attached and emotional you may become about the outcomes. While highly entertaining, the drama associated with the NCAA tournament is undeniable.
Keeping a close eye on the market is almost never helpful or entertaining. In fact, the more you watch the markets, the more susceptible you may become to making poor investment decisions. Great investors detach themselves as much as possible from regular stock fluctuations.
Lesson #4: Leave Emotions out of the Decision-Making Process
As humans, we see patterns in everyday life and our tendency to maintain memories of the times they “work” only enhances that pattern-seeking behavior.1 A great example is choosing your alma mater or a nearby school to advance in the season further than what evidence and probability suggest.
When it comes to making investment decisions, it’s wise to emphasize evidence-based investment theory and research as opposed to basing your judgments on minor indicators, patterns or gut feelings. Quality decision-making processes should ultimately protect us from our internal hardwiring that causes us to misinterpret probabilities, discover patterns where none exist and exhibit emotional responses.
Lesson #5: Keep in Mind the Importance of a Great Coach
There’s no denying that a great coach contributes greatly to the success or failures of a team, sports-related or otherwise. Coaches can act as key motivators and can also be calming in times when emotions run high. The same holds true with financial professionals. They’re personalized guidance and focus on your short and long-term financial plan is what can get you working towards a winning investment strategy for a successful financial future.
Do you need a game plan for financial success? The experts at Leonard Financial group can make a solid financial plan to help you have a winning retirement! Contact us today at 321–259-6239 to set up an initial consultation or just to ask a question. Learn more about our services online at: www.leonardfinancialgroup.com
https://en.wikipedia.org/wiki/Pattern_recognition_(psychology)
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