With the NCAA basketball tournament in full swing, anyone who is interested in "March Madness" has filled out their brackets. Some are happy with their picks, though many are disappointed their favorite team is out of the running.

While it helps to pick the ultimate winner, the best strategy is to be sure you select enough teams that will survive through the early rounds. In many ways, picking teams for the March Madness tournament bracket is similar to developing your stock portfolio.

In Pictures: Learn To Invest In 10 Steps

It's All About the Odds
If you arrive at the last couple of rounds (the Sweet 16, the Elite Eight and the Final Four) with more teams than anyone else, you have a good chance of winning your pool. When you're picking stocks that have a chance to beat the market average, the same logic applies. As your winning picks progress through each level, you collect more points. The more stocks you pick that do well the more your portfolio will reward you. If you arrive at the final rounds with more teams (or stocks) still playing you will likely win.


While it is wonderful to pick the winner, the probabilities work against you. Like putting all your money in one stock, you leave yourself open to disappointment should the game or stock not work out as you hoped.

A portfolio of good stocks based on the factors that you deem important is more likely to deliver the profits you expect. While one or a couple of your stock picks might disappoint you, the remainder will deliver good results. As long as you are beating the average, you are ahead. (Learn about how March Madness can affect players' careers; read The March Madness Effect.)

Here are a few good strategies that apply to your tournament selections as well as to stock picks.

  1. Don't pick with your heart.
    Picking a team just because it is your alma mater does not mean it will win. There needs to be more fundamental or technical reasons to pick a stock or a team. The counter to this is if you like a stock for solid reasons, then it might be a good choice. Maybe your shopping trips have shown you that a certain retailer has lots of traffic and people are carrying their bags more than others. This is a good sign your favorite retailer might be doing better than the rest of the crowd.

  2. Coaching experience matters.
    Quality coaches can make a difference. The same holds for corporate management. If management has the experience and proven skills to navigate the company, this can be a good pick. Quality management is one of Warren Buffett's most important rules in picking winning stocks. (Learn more about Buffett's techniques in Warren Buffett: How He Does It.)

  3. Be careful picking upsets.
    While they can be exciting, they are dangerous if they do not win. Buying a high-risk stock with an unproven track record might be exciting until it fails to deliver the profits you expect. That doesn't mean you shouldn't have one or two potential high flyers in your portfolio; you just don't want to stake your entire fortune on them.

  4. Do your homework.
    There is a wealth of data on the teams and the probability of them making it to the next round. The same applies to stocks. Good research gives you a leg up on everyone else.

Financial Slam Dunk
Winning your pool is exciting. If you follow a few good rules, you have a better chance of coming out on top. Like picking stocks for your portfolio, if you follow well-founded rules your chances of owning a winning portfolio will increase. Good luck in the tournament and in growing your portfolio.

Catch up on the past week's top financial news in Water Cooler Finance.

Related Articles
  1. Investing

    The 8 Best Business and Finance T.V. Shows

    With so many talking heads to choose from, which is the right show for your business and money matter needs? We review the best shows on now.
  2. Professionals

    Social Security 'Start, Stop, Start' Explained

    The start, stop, start Social Security strategy is complicated. Here's what retirees considering it need to consider.
  3. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  4. Professionals

    Is it Time to (Finally) Push Kids Out of the Nest?

    Parents should make sure their kids realize their home is a launching pad not a landing spot, and advisors can help clients talk to their children.
  5. Professionals

    Top Questions to Ask When Choosing a Robo-Advisor

    Think a robo-advisor might be the right choice for you? Be sure to ask these questions first.
  6. Professionals

    Are Hedge Fund ETFs Suitable for Your Portfolio?

    Are hedge fund ETFs right for you? Here's what investors need to consider.
  7. Professionals

    Index or Target Dates in 401(k)s: Which is Better?

    A common question is whether or not plan participants should choose index or target date funds in a 401(k). The answer depends on different scenarios.
  8. Professionals

    How to Bring Up a Prenup with Clients

    Prenups aren't just for the rich. Here's how to help clients agree to one if you think they'll benefit.
  9. Professionals

    How to Avoid the Inheritance Nobody Wants: Debt

    With the biggest transfer of wealth underway, advisors need to ensure that clients don't also inherit debt.
  10. Professionals

    The Plusses of Second Opinions for Clients

    If you are not collaborating with other professionals in your circle, you could be doing your clients a disservice.
RELATED TERMS
  1. Financial Singularity

    A financial singularity is the point at which investment decisions ...
  2. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  3. Endowment Effect

    The endowment effect describes a circumstance in which an individual ...
  4. Anchoring and Adjustment

    Anchoring and adjustment is a cognitive error described by behavioral ...
  5. Robo-advisor (robo-adviser)

    Definition of Robo Financial Advisers
  6. Custodial Agreement

    An arrangement whereby one holds an asset or property on behalf ...
RELATED FAQS
  1. Under what circumstances would I benefit from a high net worth insurance policy?

    A high-net-worth insurance policy is specifically tailored to suit the needs of high-net-worth individuals. It is specifically ... Read Full Answer >>
  2. When is litigation better than mediation in a high net worth divorce case?

    Typically, litigation is better than mediation in high-net-worth divorce cases for two major situations – when there are ... Read Full Answer >>
  3. What is the difference between fee-only advisors and fee-based advisors?

    “Fee-only” and “fee-based” sound similar, but there are important differences between these types of financial advisers. ... Read Full Answer >>
  4. Who are Morningstar's (MORN) main competitors?

    Morningstar, Inc. (MORN) is a leading provider of financial information via Internet, software and print-based products to ... Read Full Answer >>
  5. Who are Thomson-Reuters (TRI) main competitors?

    Thomson Reuters (TRI) is the worldwide market leader in financial data with a broad service range that includes publishing ... Read Full Answer >>
  6. How can you calculate your cash budget in Excel?

    Calculating a cash budget in Excel is best completed by dividing your budget into inflows and outflows. Excel makes it extremely ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!