Investing Lessons from March Madness

As we make plans for the weekend, which probably include watching the NCAA Final Four championship, many of us are merely spectators with little to no chance of realizing a winning bracket in the office pool. Most of our brackets imploded after the first round as top-ranked favorites West Virginia and Michigan State were unexpectedly crushed by their “lowly” opponents.

Though most of our Final Four brackets didn’t last long, we can always consider and apply what we’ve learned to investing.

You Can’t Predict the Future

Think back to early March. You might have overheard your co-workers or friends sing the praises of teams like Michigan State and West Virginia. These surprise defeats are eerily similar to unforeseen market selloffs or company stocks taking a hit. Few people would predict it, but it happens that a “sure thing” isn’t always so sure – that’s why the games are played.

We’re Not in Kansas Anymore

Most of the experts were predicting a Kansas title win. Why not? As a favorite to win the national championship, the Jayhawks were a top-seeded team and had won 17 games in a row. Unfortunately, costly turnovers and bad shot selection cost them the title and the “experts” were proven wrong. Their mistakes propelled Villanova through to the next round and into tomorrow’s Final Four game.

In anticipation of the March Madness tournament, the talking heads on ESPN were abuzz about Kansas and the Final Four. To draw another investing parallel, you’ll notice that there’s no shortage of prognostication about short-term market movements, hot stock picks and economic predictions on CNBC. Unfortunately, there’s much more at stake than your $20 bet in the office pool.  Making changes to your portfolio based on the opinions of market commentators can seriously derail your long-term financial goals.

In the meantime, we hope you enjoy the NCAA finals as you watch the upsets and the unknowns unfold. Have fun listening to all the experts explain why their initial picks didn’t pan out. But in investing, don’t treat your portfolio like an NCAA Bracket – you have much more to lose from a mid-court Hail Mary shot.