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Monday, March 15, 1999

Final Four Stockpicking

by Edward Hu

After watching Weber State beat the University of North Carolina, I couldn't help but notice some similarities between the NCAA tournament pools (which I don't participate in) and investing in stocks.

Most pool participants focus on identifying the "Cinderella" teams and spend much time and effort worrying about who will upset whom. The equivalent in the investing world is picking the "momentum stock" or "stock du jour." Yes these teams/stocks are exciting, but they generally are good for one or two more rounds/years of huge profit. More importantly, these teams/stocks are extremely hard to pick and generally forgotten in a couple of years.

Is it surprising that the person who usually wins the pool is the one who picks all of the Final Four teams correctly? The investing equivalent would be picking the four best-performing stocks of the decade. It is the long run that counts the most in points/dollars, right? These teams/stocks are not the most exciting to root for (unless it's your alma mater/employer) since they are the favorites. However, they are all generally the powerhouses, which are expected to win.

It seems to me that for both the NCAA tournament pools and investing in stocks, one should focus most of the time on selecting the Final Four/long term performance stocks rather than the first round upsets/"stocks du jour." That way you'll have a much better chance of being one of the ones still dancing at the end of the "Big Dance."


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