Did you watch the NCAA basketball tournament? Did you fill out an NCAA bracket? An estimated 1 in 4 Americans filled out a bracket to try and predict who is going to win it all. I do not watch a lot of basketball, but I still fill out a bracket every year. This year’s tournament was a wild and crazy ride. There were numerous upsets.
What is your strategy for filling out your bracket? Do you guess? Do you fill it in based on the best seed? Or are you like my admin and you make choices based on how long the college name is?
This year, as I was filling out my bracket, I saw some connections between investing and filling out a bracket. Listen to this episode of Best in Wealth to learn some similarities and differences between the two worlds!
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Outline of This Episode
- [1:03] A BIG thank you to listeners!
- [1:45] Did you watch the NCAA basketball tournament?
- [4:19] Similarity #1: How is filling out a bracket like investing?
- [6:20] Similarity #2: An informed approach improves your odds
- [8:21] Similarity #3: Good luck and strategy are not the same
- [9:47] Difference #1: The goal is to slightly better than average
- [12:10] Difference #2: There’s always next year
- [13:58] The BIG takeaway you must recognize
Similarity #1: How is filling out a bracket like investing?
It is pretty hard picking winners. In fact, the odds of correctly predicting the winner of all 63 tournament games are astronomically high. If you follow basketball, your odds are
1 in 120 billion. If you know nothing about basketball, your odds are
even worse.
It is hard to consistently pick winners in the stock market, too. In a typical year, most professional investors do not beat the market. Mutual fund managers have an uphill battle to overcome mutual fund expense fees. The cost of trading is expensive. If we look back over 15 years, only 25% of mutual fund managers actually beat the market.
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Similarity #2: An informed approach improves your odds
In the NCAA tournament, teams are seeded 1-16 in four different regions. If you want to do well with your NCAA bracket, you will have a better chance of winning more games if you pick the higher-seeded team. It does not mean you will be the champion of your pool. But year after year, you will pick more winners than most of your competitors.
This year, with all of the upsets,
everything went wrong. With investing, rather than trying to guess winners, take an informed approach that relies on decades of academic research. Choose to buy the whole market, or, in some cases, find different segments that do better over time and
hold them.
US stocks compound at 10% per year (from the
Center for Research in Security Prices). Having a plan—and sticking to it—can help you position yourself for a better investment experience.
Similarity #3: Good luck and strategy are not the same
Some money managers will have THE best returns, just like someone wins their NCAA bracket pool. But in both cases, it’s unlikely that they will continue to come out on top year-over-year.
When someone says, “Look at all the money I made on this stock,” I cringe. It is like someone saying they chose a one-in-a-billion upset in the bracket. Good for you—you got lucky. We often mistake luck and good strategy. Do not make that mistake.
What are the big differences between investing and filling out an NCAA bracket? What is the biggest takeaway I want you to remember? Listen to the whole episode to find out!
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Podcast Disclaimer:
The Best In Wealth Podcast is hosted by Scott Wellens. Scott Wellens is the principal at Fortress Planning Group. Fortress Planning Group is a registered investment advisory firm regulated by the Securities Act of Wisconsin in accordance and compliance with securities laws and regulations. Fortress Planning Group does not render or offer to render personalized investment or tax advice through the Best In Wealth Podcast. The information provided is for informational purposes only and does not constitute financial, tax, investment or legal advice.
