Picking an NCAA tournament bracket in March can be complex and confusing. Picking investments to make up your portfolio can be just as complex and confusing. Here are 3 lessons on market madness.
1. Cinderella Stories Are Far and Few Between
Unlike picking a bracket, when there are only a few bucks and bragging rights to lose, market madness has a little more at stake.
Think of it this way. NCAA team rankings are similar to fund rankings in different asset classes or types of funds. Asset classes being large-cap, mid-cap, small-cap, international developed markets, emerging markets, etc.
Picking the best fund in each category is almost impossible. Just like picking the Cinderella story of March is almost impossible. And unlike March brackets, where you are stuck with your pick throughout the whole tournament, in Market Madness you can sell your losers if you’re scared.
A better strategy is just to use an automated bracket filler. I believe CBS Sports has this one where you can pick what the majority of CBS Sports users are choosing. That’s like picking an index fund. On average, you’re going to beat most people in your office pool who picks their favorite teams to win it all. But IMHO, the best feature is that you click one button and you’re done. No research, no extra time spent, and you get to brag just as much as everyone else.
2. You Can’t Pick Winners Based on Last Year
At a social event, I heard a friend say he picked his 401k funds based on which funds did the best last year. That’s not good in investing nor in picking March brackets.
In 2018, Villanova won it all over the Michigan Wolverines in the title game. This year, Purdue Boilermakers defeated the defending champions, Villanova, in the sweet 16, and Michigan was knocked out by Texas Tech in the same round.
In 2017 the Dow Jones had some winners and losers. IBM lost 7.6%, Merck lost -4.4%, and Caterpiller gained 68.9%.
2018 was a terrible year for the Dow, ending -3.5% down. Caterpillar had a tough year, starting around $160 a share and ending closer to $130. Merck gained 40%, and IBM had
Takeaway
The conversation I had at that social event was in 2000. The guy I was talking to had just picked all his investments based on the winner in 1999. In other words, he had all tech stocks, which plummeted the next year.
A better strategy is
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