Madness

March 20, 2015 | Dian Chaaban


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March is an exciting time of year. A long anticipated March break vacation for some, an even longer anticipated break in the weather for all of us with the first official day of Spring (today at 6:46pm) and for others, March means only one thing: March Madness – the NCAA Men’s Division Basketball Championship – a single-elimination tournament played each spring in the United States, currently featuring 68 college basketball teams, to determine the national champion.

 

The tournament was created during 1939 by the National Association of Basketball Coaches (it was thanks to the idea of Ohio State University coach Harold Olsen) and has become one of the most famous annual sporting events in the US.

 

To make it even more exciting, all bets are on with what most of you will refer to as Bracketology - the process of predicting what the NCAA Selection Committee will use as its Ratings Percentage Index and to rank all teams from first through sixty-eighth. Bracketology is also more commonly known as the process of predicting the winners of each of the brackets – there are currently millions of brackets in play.

 

So, how did/would you choose your bracket winners? What’s it all based on?

 

I generally pick my winners based on ridiculous things, like the school with the best colours, the coolest mascot or cutest players (mostly to annoy those who take this stuff way too seriously – it’s even better when I win) but if I were to put some serious thought into it, I suppose I would start by looking at past school team performance and the potential of each player and their coaches. But then I relate it to the investment world and think, “Past performance does not guarantee future results”…

 

For many investors, it’s natural to look at historical investment performance returns when setting their expectations about the future. Others exercise what is known in the business as “performance chasing”. As soon as they hear a hot tip they pull their money out of their other investments and pour it into the new object of their affection. One of my favourite sayings is that “tips are for waiters, not for traders” and that “time in the market makes profits, not timing the market”.

 

It's natural to want to invest in a fund or an investment style that has been successful, but it’s also important to acknowledge that investment returns tend to go in cycles. The pattern of these returns is that a very good year is a hard act to follow and that bad years are often followed by recoveries. So with that logic in mind, I could assume that the Connecticut Huskies will not win this year (they won in 2014, 2011, 2004 and 1999)…

 

But there is something to be said about good management and while the students may not have a track record, there are some good coaches to watch out for – just like good money managers. With 11 national titles, UCLA has the record for the most NCAA Championships; the University of Kentucky is 2nd, with 8 national titles, while Indiana University and the University of North Carolina are tied for 3rd with 5 national titles. Duke University and the University of Connecticut are tied for 5th with 4 national titles. On that theory, I could assume that UCLA or Kentucky have good odds of winning it this year.

 

Some might look for social proof … i.e. “if Warren Buffett owns it, then it must be a good stock”.
So, let’s take a peek at what President Obama, a die-hard basketball fan, is thinking. Obama has quickly become an NCAA guru who has publically filled out a bracket for ESPN since he became president in 2009 – and he picked the right winner in his first year: North Carolina. This year, he likes Kentucky to beat Villanova in the title game.

 

Or maybe it’s what’s inside that really counts?
According to this article sent to me by a friend this morning, here’s who wins March Madness by taking a peek into the Classroom by matching teams up in the classroom, using the tournament brackets to determine the games. If the on-court bracket results mimicked academic performance, the Final Four would look like this: Davidson wins the South, Maryland comes out of the Midwest, Baylor takes the West and Dayton wins the East. Davidson knocks off Baylor in one national semifinal. Maryland knocks off Dayton in the other semi, with Davidson taking the title game.

 

For most of us, this is all fun and games – but when it comes to our investments – it’s real, it’s emotional and it matters. This is why when it comes to your investment decisions, it's important to educate yourself along the way so that you understand the basis of your short-term, mid-term and long-term plan. Working with an investment professional helps you to make sense of things and affords you the opportunity to build a plan that is unique to you, on track with your life milestones and within your investor profile – a plan you can feel confident about.