Picking Teams vs Picking Stocks

By Ben Dolan, CFP®

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Early spring provides what I believe to be the single greatest few weeks of the annual sports calendar. Between The Masters, MLB Opening Day, and most topical, March Madness, I’m constantly wrestling the desire to watch these events versus spending time outdoors around the freshly bloomed flowers and general break from cold weather. It’s a balancing act I’m glad to take on. 

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Probably like many of you, I made a bracket to chart my predictions of how the NCAA Tournament would play out. I picked my projected winner from the first game all the way through the championship. I don’t spend much time researching the teams in the tournament, but I did look at some numbers provided through ESPN’s online system while making the bracket. After the first weekend of games, I sit in the 48^th percentile of all participants, just shy of where the average person ended. 

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The funny thing is, I don’t think I would’ve done much better had I done extensive research when building my bracket. There’s a certain amount of luck involved when picking between so many teams playing one game in a short amount of time. Auburn had just won the mighty SEC conference tournament and lost to… Yale? Kentucky and their the number 1 recruiting class in the country lost to Oakland, which I learned is in Michigan not California. I certainly didn’t have those predictions coming in. 

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Playing the stock market by trying to pick winners isn’t much different in my mind. You can look up numerous stats across websites, watch professional talking heads on networks, and read articles until you need to increase your glasses prescription only to have a 24 year old D2 transfer drop a career-high 32 points on one of your Final Four teams. Most professional money managers don’t fare much better. Only about 27% of funds have survived and outperformed their benchmarks over the last 10 years ending 2022. Go out to 20 years, and the numbers decline to 17%!¹

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So how should you invest in equities if not picking stocks? We believe investors are best suited by holding investments that are low cost, broadly diversified, aligned with their risk tolerance to help them meet their goals over the long-term. By avoiding hard and fast predictions around certain companies, sectors, or countries, we can aim to avoid the big mistakes and participate in the broad success of markets generally over an investment time horizon. 

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I’ll keep quickly making my March Madness bracket annually because it’s fun and gives me a team to root for while Georgia Tech returns to prominence. I’ll keep my investments aligned with my goals and in vehicles aimed at capturing broad market returns. I’ll spend the time saved on both outside enjoying the weather.

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¹ Source: Dimensional Fund Advisors. “The Fund Landscape”