Financial Lessons from March Madness

One of my favorite times of the year is quickly approaching. A time of year that is filled with David vs. Goliath matchups and Cinderella stories, last second buzzer beaters and bracket busting upsets, mid-major surprises and elite perennial powerhouse teams. Every March, millions of college basketball fans fill out brackets hoping to predict the perfect outcome for the NCAA Division 1 Men’s Basketball tournament. Families, friend groups, and offices organize bracket pools all over the country for some good-natured fun seeing who can correctly pick the most games. While the excitement of NCAA Division I Men's Basketball Tournament is all about competition, it also offers a few interesting parallels to long-term investing.

Effort vs Outcome

One might think that following the sport closely or spending a lot of time reviewing data and trends from previous tournaments would lead to better bracket outcomes. Constructing a perfect bracket is nearly impossible though, so much so that the Oracle of Omaha, Warren Buffet, offered a $1 billion prize in 2014 to any fan that could correctly predict all 63 games of the tournament. Putting additional effort into studying team stats, efficiency ratings, and matchups won’t ensure making the correct picks, much like pouring over company earnings reports, macroeconomic data, and interest rate curves won’t lead to outperforming the market. A recent report published by Morningstar found that only 38% of actively managed funds survived and outperformed their average passive peers in 2025 despite a volatile market environment that is often thought to set the table for active managers to add value by more nimbly navigating macro trends and identifying winning themes.¹ The same study found that only 8.1% of active managers in the US Large Blend equity category survived and beat their passive benchmark for the 10-year period ending December 31, 2025.

Expect the Unexpected

Every year, a lower-seeded team surprises everyone with a deep tournament run. The unpredictable nature of a single-game outcome is part of what makes the tournament so exciting – think the 10th seeded Gonzaga Bulldogs of 1999 run to the Elite Eight or the 11th seeded Loyola Chicago Ramblers of 2018 journey to the Final Four. Underdog “Cinderella” teams can rattle off a few upsets in a row, but the lowest seeded team to win the tournament since 1985 is an 8-seed, and 26 of the 40 tournaments since 1985 have been won by a 1-seed. Markets can behave similarly—unexpected events and price volatility can occur in the short-term due to changes in sentiment or geopolitical events. In the longer-term, returns are driven by economic fundamentals and business performance. Having a diversified investment strategy can help dampen the volatility that arises from short-term surprises and help investors stay invested through market cycles, leading to better long-term outcomes.

Don’t Chase Last Year’s Winner

The team that dominated last season isn’t guaranteed to repeat. There have been 40 tournament brackets since the NCAA Division 1 Men’s Basketball Tournament moved to a field of 64 teams. In that timeframe, there have only been three schools (Duke ’91-92, Florida ’06-’07, UConn ’23-24) to claim the title in back-to-back years. In investing, chasing the most recent “hot” stock, sector, or asset class can lead to disappointment. The best performing asset class one year can quickly turn into the worst performing asset class the next year. Long-term discipline and diversifications across various asset classes tends to outperform trying to time the markets and predict the next short-term winner.

The Power of a Strong Game Plan

Championship teams rely on preparation, coaching, and sticking to their strategy—even when the game gets chaotic. When an opposing team goes on a run of scoring points or when the score is close at the end of the game, successful coaches often use timeouts to gather their team and revisit their game plan. During periods of market volatility, successful investors can also benefit from calling a timeout, engaging with their financial advisor, tuning out the noise from the media, and revisiting their well-designed financial plan that keeps them focused on long-term goals rather than getting distracted by the noise that the financial markets can produce in the short term.

A Final Thought

Much like filling out a bracket, investing can involve uncertainty—but a thoughtful strategy that sticks to long-term principles and steady discipline can improve the odds over time. And while we enjoy the excitement of March Madness, when it comes to your financial future, a disciplined approach grounded in preparation and patience can be beneficial.

¹ Better Conditions Did Not Yield Better Results for Active Managers in 2025 | Morningstar