James Zahansky, AWMA®
Principal/Managing Partner, Investment Advisor & Chief Goals Strategist
March Madness is nearly upon us, and as many of us know, the season highlight for college basketball fans is often full of upsets, underdogs and blowouts.
Like investing, filling out a bracket involves balancing risk, reward and expectations, and winning a pool ultimately requires a bit of luck along the way. Here are a few lessons from March Madness that we can apply to the world of investing.
Lesson #1: Forget Perfection, Position Yourself Strategically
The odds of filling out the perfect bracket are pretty scarce - so are the odds of consistently selecting prime investments within the market. This can make the process of approaching March Madness, and investing, fairly daunting.
Successful investing stems from focusing on what you can control. That can mean building a portfolio that is positioned to maintain return premiums, such as size, value or profitability that can improve risk-adjusted returns. Additional areas that are also within your control include asset allocation, keeping investment costs low, minimizing taxes and more. In the end, it's all about having an informed strategy and carrying it out consistently, no matter what life throws at you – that's why we built our firm around our Plan Well, Invest Well, Live Well strategic process.
Lesson #2: Don’t Let Past Performance Dictate Future Decisions
Similar to allowing a past team’s success to influence your bracket picks, investing based on previous performances will generally only lead to disappointment. As an investor, you should never assume that your “best pick” from the past will act similarly in the near future.
It’s also important to keep in mind that luck can often play a role in the success of one’s season. While your bracket pool, or asset managers, might be skilled, it may be hard to tell if it’s that skill or luck that helped them do so well. It’s fairly common to see funds that have outperformed in a certain amount of time proceed to underperform in the following period.
Lesson #3: The More You Watch, the More Drama You Can Expect
Just like watching a clock tick slowly as you wait for a profound moment or event to take place, the more you watch March Madness, the more attached and emotional you may become about the outcomes. While highly entertaining, the drama associated with the NCAA tournament is undeniable.
Keeping a close eye on the market is almost never helpful or entertaining. In fact, the more you watch the markets, the more susceptible you may become to making poor investment decisions. Great investors detach themselves as much as possible from regular stock fluctuations.
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Lesson #4: Leave Emotions out of the Decision-Making Process
As humans, we see patterns in everyday life and our tendency to maintain memories of the times they “work” only enhances that pattern-seeking behavior.1 A great example is choosing your alma mater or a nearby school to advance in the season further than what evidence and probability suggest.
When it comes to making investment decisions, it’s wise to emphasize evidence-based investment theory and research as opposed to basing your judgments on minor indicators, patterns or gut feelings. Quality decision-making processes should ultimately protect us from our internal hardwiring that causes us to misinterpret probabilities, discover patterns where none exist and exhibit emotional responses.
Lesson #5: Keep in Mind the Importance of a Great Coach
There’s no denying that a great coach contributes greatly to the success or failures of a team, sports-related or otherwise. Coaches can act as key motivators and can also be calming in times when emotions run high. In terms of financial well-being, working with a trusted, educated financial professional can be beneficial. Having a good behavioral coach is crucial to maintaining emotional stability and clarity as you make financial decisions.
Financial advisors often act as emotional barriers between individuals chasing returns and running from emotionally charged markets. Without proper guidance, you may lack the understanding and discipline to approach investments wisely. While we can certainly compare the two, creating a March Madness bracket doesn’t have the same high stakes as developing an investment portfolio.
There’s a lot to consider when it comes to investment planning, and even more when creating a solid long-term financial strategy. Our team here at Weiss, Hale and Zahansky Strategic Wealth Advisors is passionate about doing both, and helping our clients to fearlessly pursue their financial and life goals by removing the guesswork, wishful thinking, and potential worries from investing. If you're in need of a trustworthy advisor, get in touch to request a complimentary consultation with us now.
Presented by Principal/Managing Partner James Zahansky, AWMA®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259, 860-928-2341. www.whzwealth.com.