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Long-Term Mindset

🧠 Why You Shouldn't Want to Win March Madness

Published 3 months agoΒ β€’Β 3 min read

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Welcome to Long-Term Mindset, the Wednesday newsletter that helps you invest better.

Today's Issue Read Time: <3 minutes

  • Lesson: March Madness
  • Timeless Content: A fintech pirmer
  • Thread: Stock-Based Compensation
  • Resource: A quality newsletter
  • And more!

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Friends,

In 2011, March Madness turned the betting world on its head. The Final Four included:

  • University of Connecticut -- #3 seed
  • University of Kentucky -- #4 seed
  • Butler University -- #8 seed
  • Virginia Commonwealth University -- #11 seed

Of the 5.9 million brackets submitted to ESPN.com, only two correctly chose these participants. That's just 0.00003% of brackets submitted. (Note: The women's tournament has had outlier years -- like 2016 -- as well, but not to the same extreme)

Here's the question: Would you put your money on these same two people to finish in the top 10% of brackets over the next decade?

The correct answer: Absolutely not!

These tournaments are inherently unpredictable -- a Cinderella team nearly always makes a deep run. That's what makes it so much fun. But accurately predicting who that Cinderella team will be every year is impossible.

Don't get us wrong: seeing your portfolio up 300% in one year is very exciting. But the same types of investments that make this possible are the same that could just as easily lead to 90% drawdowns.

Widen your lens, and it becomes a little less exciting -- and more predictable: between 1986 and 2021, the average Final Four participant was a #2 seed. And that includes the five times a #11 seed has reached the Final Four. Over this timeframe, the most consistently successful brackets stuck with mainstream choices.

The implications are important. If you're investing for retirement, you (hopefully) have decades before you'll need to draw on it. What matters is NOT trying to get the highest possible returns in any given year. It's getting moderately healthy returns over your investing life. Notching 10% returns over 30 years is the same as 1,600% returns in total.

Interestingly, most people miss an option when signing up for March Madness brackets -- the tiny "Autofill" feature that simply picks the best seed.

Don't get us wrong -- we know this is the antithesis of having fun in March. But at the same time, we think the "Autofill" option is by far the best for any investors who don't want to research individual stocks: Index Investing.

You might find it surprising to hear us Brians -- who love investing in individual stocks -- say it. But there's nothing wrong with owning an S&P 500 ETF. It's the right choice for most investors.

Over the long run, it will very likely provide the financial returns you're looking for. And for most people, that's more than good enough.

- Brian Feroldi, Brian Stoffel, & Brian Withers


One Simple Graphic:


One Piece of Timeless Content:

The Fintech industry is eliminating the need for banks to have brick-and-mortar locations. The trend of digital commerce and e-banking is creating exciting opportunities for investors, but where to start? This Fintech primer is a great way to understand the trend towards a "cashless" society.


One Thread:


One Resource:

Compounding Quality is one of our favorite follows on Twitter and LinkedIn...but did you know he also produces a fantastic newsletter? It's filled with investing lessons, company deep dives, and timeless investing content. I highly recommend you sign up for it.


One Quote:


πŸ‘‹ LAST WORD How are we doing?

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Just hit reply and say hello – we'd love to hear from you!


More From Us:

πŸ“— If you've read Brian Feroldi's book, he'd love a review.

πŸ‘¨β€πŸŽ“ The next cohort of our Valuation Explained Simply course starts in May! Click here for details.

🎬 Want a review of popular company earnings? Check out our YouTube channel! Last week, Brian Feroldi did a deep dive into Reddit's IPO.


Long-Term Mindset

by Brian Feroldi

I teach you how to invest with a long-term mindset. Each Wednesday, I share six pieces of timeless content that can be read in less than 2 minutes. Read by 100,000+ investors from a16z, Amazon, Google, Microsoft, and more.

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