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March 14, 2020

What March Madness Can Teach You About Investing

March Madness is again fast approaching. If you are like most Americans, you will soon be making your annual NCAA Basketball Tournament selections, and you may be surprised to learn that the methodology for picking winning brackets has a lot in common with that of choosing a winning investment portfolio.

In this article, we will describe the means in which you can be successful in both endeavors.

1. Do Your Research

Picking winning NCAA Tournament brackets requires research on your part. Randomly selecting teams is not likely going to lead to much success, especially in the long term. Nor is picking only the favorites.

Instead, you should research every team and look at more than just their record. Also look at the quality of the conference that they play in and at the number of quality teams that they have beaten outside their conference this season. Further be open to the idea that a team that you may have never heard of could be a lot better than you expected.

You should look at every team’s roster, too. Check whether a team is laden with freshmen who have never faced the kind of pressure that comes this time of year. If they do have a veteran lineup, check to see how well they have performed during previous tournaments.

Finally, check a team’s coach and find out whether this person has a record of success in the tournament or has underachieved.

When it comes to investing, succeeding also requires research. This entails investigating a wide range of investment opportunities, including those that you may not know. Like with basketball teams, many investments that you are not aware of can surprise you once you learn about them.

The first thing that you should find out about these investments is how well they have performed. This means not just how they have performed in recent times but also how they have performed over the course of their lifetime. Also, check the industries that they are in and find out how well they have performed.

Finally, look at each investment’s management and its team, and ask yourself whether they have the competence to fulfill their promise.

2. Do Not Follow the Herd

It seems that every year a number of basketball teams come out of nowhere at the end of the season to become everyone’s picks in the tournament. This is usually because these teams either got hot or because they pulled off a spectacular upset that grabbed everyone’s attention.

The problem with selecting these kinds of teams in your brackets is that they usually disappoint in the tournament. Just as a team can get hot, it can get cold. Also, an upset is considered spectacular because the team that pulled it off is fundamentally flawed. So, while in any given game anything can happen, it is rare for these kind of spectacular upsets to repeatedly happen over the course of the entire tournament. It is therefore better to pick a team that has consistently performed well.

For the same reason, you should not make investment decisions based on what everyone thinks is hot at the moment. Investments that are hot today could be gone tomorrow, especially if they do not provide fundamental value. Instead, invest in industries that provide something that has inherent value.

3. Diversify Your Selections

Even if you only casually watch the NCAA Tournament, you have probably noticed a number of recurring phenomena.

Chief among these is the emergence of a Cinderella. Almost every year a low-seeded team, which is often largely unknown, captures America’s heart as it unexpectedly makes its way toward the finals. But it is rare for more than one of these teams to make it to the finals.

Conversely, it is also rare for all four No. 1 seeds to make the finals. A few of these, along with some other favorites, are usually unexpectedly knocked out of the tournament, often in the early rounds. But it is even rarer for no favorites at all to make the finals.

So, when filling out your brackets, it is important to diversify your picks in preparation for the unexpected. You can do this by selecting both underdogs and favorites, with an eye toward some combination of them being successful over the course of the tournament.

When investing, you should similarly diversify in preparation for the unexpected. No one can predict the future, and events that are beyond anyone’s control can dramatically affect certain markets. So, instead of putting all of your money in stocks, diversify your portfolio.

The Benefits of Diversifying Your Portfolio with Alternative Investments

There are many ways in which you can diversify your portfolio. You can do it with bonds and cash-equivalent instruments, or through alternative investments, such as:

What makes alternative investments such an attractive means of diversifying your portfolio is that they can act as a hedge against stock market volatility while at the same time often offering high returns.

Why Real Estate Is the Perfect Alternative Investment

Real estate fulfills all three investment criteria. Through your research, you will see that real estate has consistently generated high returns over a long period of time. It is also not some trendy new industry. Real estate is something that people throughout time have needed and will continue to both need and value. Lastly, real estate is the perfect means to diversify your investment portfolio, as real estate values do not correlate with the ups and downs of the stock market. So, even if the stock market falls for some unexpected reason, your portfolio is protected.

In spite of all the virtues of investing in real estate, in the past it has had one big drawback: it required a lot of money. But this is no longer true. With a real estate investment trust (REIT), you can buy a share of a property just like you can buy a share of a company. DiversyFund offers an SEC-regulated REIT that is open to all, and you can start for as little as $500. It can not only diversify your portfolio but do so with an asset that you can count on to hold its value.

 

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