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Market madness

The season has come for Americans to display their forecasting skills in the battle for best in bracketology.

A perfect bracket is scored by accurately guessing every winner in each game of the men’s college basketball tournament, a period of frenzy that overtakes the country every March.  

Getting a perfect bracket is no easy feat. Why not? It’s the odds of perfect predictions.   

Out of many national schools, only 68 can qualify for the annual championship tournament. Part of the pre-fever is this process of seeing which schools make it. Then it’s in the narrowing of these 68 where everyone from sports analysts and committed fans to those who are just learning about basketball can get stumped.

After two rounds, the 68 teams are narrowed to 16 and scaled down to eight until the remaining four are left in the last stretch for the championship.

It tends to be in the first two rounds where much of the mania happens. The elements of shock, awe and surprise are so well known during these games that the only certainty bracket players have is uncertainty.

There are even terms to go along with it. An “upset” happens when a favorite (and expected) winner didn’t end up moving forward. A “Cinderella” refers to the underdog team. Some bracket players purposely choose Cinderella teams as part of their strategy. For these kinds of players, upsets work in their favor.

Now back to the odds of a perfect bracket. Mathematicians diverge on this. On one end, some believe the odds are 1 in 9.2 quintillion. That’s 18 zeros. On the other end, there’s also belief that the odds can be higher: 1 in 128 billion.

Either way, it’s low enough that investing guru Warren Buffett was curious to see who could get it right.

Take a look at the prizes he has offered for bracket picking.

This year, he told the media that one of his rewards will be $1 million per year for life to any Berkshire Hathaway employee who accurately predicts every pick in the first two rounds.

The reality is that even if someone were to pick the 16 narrowed teams correctly, it doesn’t equate to a perfect bracket.

Last season, after the first day of basketball, only 0.0025% of the brackets were still perfect, according to CBS sports on brackets played on its platform.

In 2014, Buffett paired with a mortgage lending behemoth to give $1 billion to anyone who forecasted every win correctly. No one got the prize. Not professional basketball player Stephen Curry and not President Barack Obama.  

While bracketology is not investing, it certainly does give a glimpse into the lives of professional investors.

While bracketology is not investing, it certainly does give a glimpse into the lives of professional investors.

Except sometimes the odds are even lower, the time horizons are longer, there are more “teams” to pick from in the pool of global assets and decisions are rarely made by one person alone. Couple this with greater uncertainty of market influences.

That, of course, doesn’t mean investors have or will give up. Low odds didn’t stop mathematicians and sports forecasters from trying to formulate the perfect bracket. One day, their predictions may make it through the hoop. Similarly, investors are unlikely to stop in their quest for the right strategies to a high-caliber portfolio.

To the benefit of investors, whereas only one team can win the men’s college basketball trophy, several assets can contribute to returns in a portfolio. Simultaneously, there are investment managers with a global team presence, and that can make a difference when looking for assets around the world. After all, unique plays like alley-oops can’t happen on a one man team.   

Such odds make investing in global markets a bit more bearable. Except in the case of what our central banks will do next. As much as we want to predict what they have lined up, we are better off preparing ourselves rather than trying to read their minds. That’s another type of “madness” for another day, and odds that may require much more than 18 zeros.

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