Every March my friends and clients guilt me into participating in their NCAA basketball tournament pools. The results are the same each year. After the first two rounds of games I have lost my entry fee and have no chance of winning anything.
Filling out a tournament bracket is not difficult. You just need to pick a winner for each game. Both expert and casual college basketball fans usually pick the favorite to win. The higher seeded team usually wins their games.
Stock market investors should bet on the best investments. But how does the average stock market investor know who the current stock market favorites are?
The main reason is that individual stock market investors have been sold on the investment management strategy of asset allocation.
Asset allocation suggests investing your stock market investments across the board in several different stock market asset classes. Large, Mid, and Small Cap stocks should get some of your stock market money. The same goes for Value, Growth, and Blend stock market investments.
Small and Mid Cap growth stocks and mutual funds have been the best place to be invested in the U.S. stock markets for almost the last 13 years. Why then do stock market investors continue to listen to investment professionals who tell them to continue to bet their stock market money on the long shots?
There is too much stock market money invested in long shots. There is not enough stock market money invested in the favorites.
Small and Mid Cap stocks are likely to continue to outperform the broad stock market averages. Investing in those types of stocks is a very high probability bet to make. The bet that other U.S. stock market assets will all-of-a-sudden improve their investment performance is a low probability bet to make.
There are upsets in the men’s NCAA basketball tournament. There are not that many upsets in stock market investing.
When other U.S. stock market asset classes begin to perform better, then make investment management changes. Don’t make investment management changes until that happens.
Save the long shots for your basketball tournament bracket. Your stock market money deserves a better thought process and investment management strategy.
Ric Lager
Lager & Company, Inc.
