March Madness or Market Madness? Think you can pick the perfect bracket or the perfect investment strategy this year? There doesn’t seem to be a clear front-runner for the tournament nor the markets.
The 2015-2016 NCAA season was rather strange where Top 10 teams suffered 74 losses, the most since the Associated Press launched their Top 25 poll in 1948; Top 5 teams were upset 37 times, 21 of which were from unranked opponents; and No.1 teams in the country lost 7 times. Similarly, the global stock market struggled to tread water and the NASDAQ led the way with a whopping 5.7% return. This sure seems to be a tournament that could be difficult to pick the winner and will undoubtedly have many real upsets and volatility.
Speaking of volatility, the S&P 500 return last year was really driven by four individual stocks coined as the FANG Four – Facebook, Amazon, Netflix and Google. These four dominated throughout the year and put up returns ranging from 30% to 135%. Had these been the teams in the NCAA tournament, they would have certainly garnered No. 1 seeds. Fast forward to today and three of the four would have been upset by the S&P 500 Index. Netflix and Amazon are both down about 15% year-to-date and Google is down over 4%. The lone winner was Facebook with a 5% return. Will the No. 1 seeded Kansas, Oregon, North Carolina or Virginia win it this year? Time will tell, but we certainly think there will be a number of upsets as well as volatility in both the tournament and stock markets this year.
In choosing my teams, I would rather take the field of 68 teams instead of just the No. 1 seeds. There is too much risk and uncertainty with putting your entire wager on a few teams. I feel the same about my investment portfolio. I won’t attempt to just pick one or two securities. I would much rather own a globally diversified portfolio that will win over the long run.