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 Basics

    Fee-Only Financial Advisors: What You Need To Know

    Are you considering hiring a fee-only financial advisor or one who is compensated via commissions? Read this first.
  2. Retirement

    Two Heads Are Better Than One With Your Finances

    We discuss the advantages of seeking professional help when it comes to managing our retirement account.
  3. Personal Finance

    How the Social Security Reboot May Affect You

    While there’s still potential for some “tweaking” around your Social Security retirement benefits, I’d like to share some insight on what we know now.
  4. Investing Basics

    Do You Need More Than One Financial Advisor?

    Using more than one financial advisor for money management has its pros and cons.
  5. Personal Finance

    How Tech Can Help with 3 Behavioral Finance Biases

    Even if you’re a finance or statistics expert, you’re not immune to common decision-making mistakes that can negatively impact your finances.
  6. FA

    Paying for College: Utilize These Top Hacks

    Saving money for college is difficult for many families, but it doesn't have to be. Here are some overlooked hacks to save money on college costs.
  7. Financial Advisors

    Bull vs. Bear Markets: How to Be Prepared for Both

    Bull and Bear Markets are a reality that every investor must be prepared for. Here are a few tips.
  8. Retirement

    Top Signs You Aren’t Ready to Retire Yet

    Think you are prepared to retire? These warning signs may indicate otherwise.
  9. Professionals

    Parents: Avoid This Retirement Savings Mistake

    Parents should make saving for their own retirement a priority over helping with their children’s college costs.
  10. Personal Finance

    Blockchain Boom Could be the Next Big Thing for Tech Startups 

    Blockchain technology offers startups the ability to create flexible and secure businesses. It's a growing trend, but startups' success in deploying the technology to create products and services ...
  1. Do financial advisors charge VATs?

    The Personal Finance Society (PFS) and with Her Majesty's Revenue and Customs (HMRC) have outlined when a value-added tax ... Read Full Answer >>
  2. Do Sallie Mae loans go directly to your school?

    Sallie Mae is the biggest provider of financial aid and student loans in the United States. The company operates as a private ... Read Full Answer >>
  3. What are working capital costs?

    Working capital costs (WCC) refer to the costs of maintaining daily operations at an organization. These costs take into ... Read Full Answer >>
  4. Do financial advisors get paid by mutual funds?

    Financial advisors are reimbursed by mutual funds in exchange for the investment and financial advice they provide. A financial ... Read Full Answer >>
  5. Do financial advisors prepare tax returns for clients?

    Financial advisors engage in a wide variety of financial areas, including tax return preparation and tax planning for their ... Read Full Answer >>
  6. Is a financial advisor required to have a degree?

    Financial advisors are not required to have university degrees. However, they are required to pass certain exams administered ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  5. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
Trading Center