March Madness

March Madness

As financial advisors, it’s our job to provide our clients with sound, qualified investment advice. We trust that most of the time our advice makes sense. However, there may be occasions, like today, where our advice makes people blink. Ready?

Don’t let the ball control you.

We know, that’s pretty cryptic. But take a look at your calendar and things will start to become clear. What month is it? That’s right, it’s March. And we all know what happens in March.

Madness.

March Madness, to be exact, the annual NCAA basketball tournament to crown a national champion. It’s a three-week event that, allegedly at least, leads to higher gambling1 and lower productivity.2 But, the real danger, to you at least, is the impact that it has on investing.

What’s the correlation between March Madness and investing? While there’s no direct link between basketball and the markets, one can impact the other. Specifically, we’re speaking about the effect March Madness has on people’s emotions. We all know that following sports often involves emotional commitment. We don’t just watch teams play, we root for them. Whether it’s our local school, our alma mater, the schools our children go to, or just because we like their mascot, many of us tend to favor one team over the other. We’re ecstatic when they win; we’re depressed when they lose.

Some people might not be quite so affected by the way the ball bounces. But for those who are, it’s crucial that you remember not to make emotional investment decisions. This is never truer than during the month of March. Some people are more likely to make impulsive decisions based solely on how they are feeling. So if you’re emotionally invested in the tournament, try to resist making any meaningful decisions until it’s over. If your team loses, you might be so depressed or angry that you end up doing things you regret. Especially when it comes to your portfolio.3

One study4 done in 2005 looked at the effect of countries’ stock markets after their national teams lose in the World Cup. They found in many cases that if a country’s team lost, their stock market would drop 38 points. And that’s just the average—imagine what the number might be for individuals. The only explanation for this is that the loss influenced investors’ moods to a startling degree.

When it comes to our finances, we can’t afford to let our emotions get the better of us. The wisest investing is done with our heads, not with our hearts. So if you find yourself sitting on the couch, watching a game, remember: don’t let the ball control you. Instead, give us a call. We’d be happy to discuss your portfolio with you if you’re a client. If you’re not a client, give us a call anyways. We’d welcome the opportunity to talk about how we may be able to help you.

Sources:
1 One expert estimates that more than 7 billion dollars are wagered illegally. http://tinyurl.com/7zy2xgm 2 http://tinyurl.com/8ykvtw9
3 http://www.marketwatch.com/story/march-madness-and-your-portfolio-2011-03-11
4 http://tinyurl.com/dar9y