March Madness And The Stock Market
March Madness And The Stock Market
We hosted our first March Madness "Work and Watch" party this year at the beginning of the Men's tournament. There were clear upsets like Yale taking out Auburn and the Duquesne Dukes who last appeared in the tournament in 1977. On the flip side, we also saw some consistent performances from UNC, Purdue, Houston, and UConn. As we head into the third round, all first and second seeds continue in the fray. The unpredictable rollercoaster of March Madness has striking parallels to the stock market. Sometimes, the top dogs perform as expected; other times, we see surprise Cinderella stories.
Top Teams
Every year, teams shuffle in and out of contention. New stars emerge while old favorites fade. Similarly, the stock market landscape perpetually fluctuates, with trends shifting, industries evolving, and economic conditions changing. Ten years ago (2014), the top four seeded teams were Arizona (West), Virginia (East), Florida (South), and Wichita State (Midwest). Of those teams, only Arizona made it to the tournament this year. Similarly, the top four companies in the S&P 500 by market cap ten years ago were Apple, Google, Microsoft, and Exxon. Only Microsoft and Apple remain in the top four. Just as a team can stumble due to injuries or unexpected setbacks, even the most robust stocks can take a hit from unforeseen market forces or poor corporate management. While size and strength are important to top-performing teams, solid leadership, consistent performance, teamwork, communication, and the ability to adapt to conditions are essential.
The Experts
Before the games commence, sports commentators engage in lively discussions about their anticipated winners, and if you tune into CNBC, you're bound to encounter comparable analyses regarding stock market champions. These experts make their living imparting perspectives and prognostications. However, we repeatedly witness these forecasts prove inaccurate, reminding us that the future remains uncertain. According to a study by CXO Advisory Group, which analyzed 6,582 forecasts for the U.S. stock market by 68 experts, only 47% of stock market predictions turned out to be accurate, highlighting the inherent unpredictability of financial markets and that any forecast amounts to noise.
Diversify Your Portfolio
While there can only be one winner in the NCAA tournament, you can still win your office bracket without picking the winning team. Each win along the way provides points that multiply with each round. Similarly, your investments will compound over time. By diversifying your investments using mutual funds and ETFs, you don't need to pick individual stock winners. Spreading your stock investments across different asset classes and staying in the game will amplify your returns over the long term.
Wrapping Up
As we head to the Sweet 16, much uncertainty remains. We know the NCAA tournament will culminate with the championship game on April 8 in Arizona, just like we know there will be stock market movement, but no one knows who will be the winners today or next week. You will likely be disappointed if you treat your investment portfolio like your March Madness bracket. Instead, stay focused on your long-term financial plan and investment goals instead of short-term basketball field goals and free throws.
Sources:
https://www.ncaa.com/basketball-men/d1/every-ncaa-bracket-1939-today-tournament-stats-records
https://www.youtube.com/watch?v=kfMFDcuDKYA
https://www.cxoadvisory.com/gurus/