April 6, 2013
During this time of the year office brackets and friendly wagers are seen everywhere, luring in even the faintest of sports fans. This epidemic, also known as March Madness, has gotten ahold of everybody and is the craze of the nation for almost a full month! So besides edge of your seat excitement filled games, what other takeaways can this basketball tournament bring us?
Let’s take a look at some common mistakes made when filling out your brackets and why you want to make sure they don’t translate to the way you run your personal finances!
Hometown Bias: People have a tendency to be partial towards what they know. In NCAA Tournament brackets, this is seen by people advancing teams they know or have heard of. They build a bias in their heads that since they know the team, they must win. This is apparent by the plethora of Central New Yorkers advancing Syracuse to the NCAA championship, the staggering amount of all Big East teams in the Final Four, and other similar bias’ you see every day in local office bracket pools.
The key is to not let this bias run into your personal investing life. Just because you work for a company, recognize a stocks name, or feel you know a particular industry does not mean that it is worth owning. Take a step back and make sure you are making a sound investment decision, and not an off-the-cuff “hometown bias” guess!
Expert Analysts: Being an expert does not always give you an edge, but rather can make you more dangerous. This was very evident in our Rockbridge office pool where Tony’s ten-year-old daughter, Lauren, has won two of the last three years! I’m a bit embarrassed to admit it, but there are very few college basketball games I don’t watch; however it certainly didn’t give me any strategic advantage over Lauren who filled out her bracket over a bowl of Cheerios the morning they were due!
Overconfidence can lead investors to believe they can outperform the market. It will lead you to make non-prudent investment decisions that will ultimately have a negative effect on your retirement portfolio. One basketball expert couldn’t see any way for this small school to make it to the Final Four.
“No. 8 Pittsburgh over No. 9 Wichita State: Pittsburgh goes 10 deep with no stars. The Panthers are a very good offensive rebounding team, ranking fourth in the nation in getting more than 40 percent of their own misses … Because Pitt is better on the offensive end, The Bilastrator favors Pittsburgh, and the Panthers will move on to face Gonzaga. “
– Jay Bilas, ESPN Analyst 2013
Don’t leave your retirement accounts to chance. Make sure you have a financial plan in place and be disciplined enough to adhere to it. Even bright people make bad predictions. Don’t let your finances fall victim to one of them!
The Cinderella Story: We Americans love our underdog stories. When I glance at ESPN in the morning it is filled with the best of yesterday’s sports, which always includes a few “Cinderella-like” comebacks! Have you ever seen a movie where the worst team in the league didn’t end up winning the championship in a stunning comeback? A team that starts out bad and stays bad just isn’t worthy of the spotlight! I certainly remember the 2010 NCAA Tournament when my alma mater, Cornell University, made it to the Sweet 16! I seem to forget to mention their quick exit from the tournament in 2008 and 2009. Ooops!
So don’t forget the parallel that can be made to your own finances. We all know the guy who tells you about the great stock he bought and how it has tripled in value since, but what do you think he is choosing to not tell you? Stick with what you can control when it comes to your finances and leave the guesswork to your office NCAA Tourney pools!