March Madness lessons for financial investments

March 10, 2012

What do investments and the NCAA tournament have in common? Discover the connection.

Key Points

Selecting teams to win the NCAA tournament is, in many ways, like picking investments for your portfolio. The goal is to identify those stocks that are most likely to outperform the overall market.

If you think of both teams as stock choices, you'd definitely be tempted to choose Company A over Company B. But taking the long view, nothing says that Company B can't come back and outshine Company A. Fortunately, a stock's relative strength can be determined at any time using one of the myriad investment tools the Web has to offer.

Incorporating relative strength into your portfolio analysis enables you to invest in the best-performing areas of the market. Just as importantly, relative strength will show you which investments aren't working and should be sold.

68 TEAMS AT THE START

So what does the relative strength investing technique have to do with basketball? First, a little background. The NCAA tournament begins with 68 teams and operates in a knockout format, concluding with one team left standing.

It's also the subject of recreational office pools and bracket tournaments shared among friends and family. Participants fret over their brackets and debate which of their favorite teams have the talent to make it to the finals. No matter how diehard of a basketball fan you may be, however, you are also a physician, and chances are you don't have the time to follow 68 teams throughout the season. Further, at the start of the season you may have no idea which 68 teams will be participating.

Fortunately, the NCAA helps out by assigning all the teams in the tournament a seed, or number, showing where each team ranks in its region and overall. The NCAA does this to ensure that the strongest teams don't meet each other too early in the tournament. Seeding also provides the average sports fan a starting point from which to make his or her picks.