What March Madness? Cinderella isn’t helping you win your office pool, or your retirement

March Madness? What March madness. Why do we like betting on march madness? We all like to think the annual college basketball tournament is about amazing upsets, but it’s not.

In the same way, we like to think that investing is about picking great stocks. It’s not. People who think they can get rich picking stocks are actually delusional. Seriously.

I examined what March Madness can teach you about investing for Grow. Click over there for the four lessons I drew out of the tournament for them. But for the really geeky, here’s the data behind that story:

Every March, America falls in love with small colleges from around the country as their decidedly shorter, decidely less talented basketball teams somehow manage to pull off miraculous upsets. This year was no different. Middle Tennessee State. Stephen F Austin. Hawaii. Little Rock. This year’s Davids slayed Goliaths like California, Purdue, West Virginia, and Michigan State. They are your 2016 NCAA tournament Cinderallas.

America loves an underdog; so do American investors: Who doesn’t brag about finding the upstart startup; the no-name about to become a household name; the penny stock about to break out.

But here’s the bad news: When the dust cleared after on the 2016 tourney’s first weekend, all the Middle Tennessee States and Stephen F Austins were gone. The tournament’s Sweet 16 included nary an unexpected name. Instead, it was loaded up with all the usual suspects: Duke, Kansas, Maryland. And now that the Final Four is set, we have: Villanova, Syracuse, North Carolina, and Oklahoma. None of them rode a souped-up pumpkin to the dance, I can assure you.

If fact, while the NCAA tournament enjoys the moniker March Madness because dramatic upsets seem to be common, in the long run, the reverse holds true. Let’s look at the Final Four from last five tournaments. Of the 20 slots for finalists, 17 were taken up by the IBMs and GEs of the college basketball world. Kentucky took four slots, Connecticut three, Wisconsin two. Then there’s Kansas, Ohio State, Louisville, Michigan, Syracuse, Florida, and Michigan State. Not much madness there at all.

Only three of the 20 — VCU, Butler, and Wichita State — would be considered startups. And nary a one won the national championship.

Go back another five years – 2006-2010 – and the pattern remains. Only two of those final 20 would fit into a glass slipper.

So the basketball nerds in your offices who win the pool take home the money because they picked North Carolina or Kentucky to win it all, not because they guessed right that Hawaii would upset California in the first round.

And so it is with investing. Cool startups get all the noise, but for every Amazon or Apple, there’s a Pets.com. Follow my logic over at Grow’s site.

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About Bob Sullivan 1638 Articles
BOB SULLIVAN is a veteran journalist and the author of four books, including the 2008 New York Times Best-Seller, Gotcha Capitalism, and the 2010 New York Times Best Seller, Stop Getting Ripped Off! His latest, The Plateau Effect, was published in 2013, and as a paperback, called Getting Unstuck in 2014. He has won the Society of Professional Journalists prestigious Public Service award, a Peabody award, and The Consumer Federation of America Betty Furness award, and been given Consumer Action’s Consumer Excellence Award.

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