Investing is a competitive arena where the fittest not only survive, but thrive. The NCAA basketball tournament brackets were released Sunday and the playoffs start today – the men’s and women’s teams are ranked 1-16 in 4 regions respectively. In the stock markets, there is always someone in first place and someone in last place at the end of the trading day. On April 8&9, those 64 teams will have been reduced down to one winner each. On any given day, you can rank the daily returns of each stock within a given index. Investing is not a zero-sum game like most gambling or trading of options or futures contracts. Wealth can grow within the stock market, but score is still kept on a relative basis. If you evaluate a group of investors or mutual fund managers, someone always ends up in first place, either making the most money in the up market, or losing the least in the down market. There is also always someone in last place, and everyone else who falls in between. In a world of buyers and sellers, there are 2 sides to the trade, and being on the right side at the right time is critical for success. People invest for one reason: to make more money.
Each investor has a limited number of dollars to put to work, so it is critical to develop a selection strategy that will single out the best performers within a given asset class. For everyone who makes money, generally there is someone losing (unfortunately it is often the individual investor – look at how many people sold their stocks and funds at the bottom of the market in 2009 locking in losses, sat on the sidelines in cash, and missed the recent 100% returns!). America was born on capitalism, free-markets and competition. Stocks, bonds and derivatives are merely tools for the transfer of assets, obligations and currencies. Aside from our health and physical well-being or spiritual state, our financial condition is often the most significant driver of our quality of life. Most people do not need gobs of money to effectively care for their families, but after the turmoil of the markets over the past two decades, I have seen families shattered and emotionally devastated by a few wrong moves. Lack of knowledge can cause us to be on the wrong side of the trade at the wrong time. An objective strategy, discipline, and a focus on quality investments can put the odds in your favor. Many NCAA teams focus on fundamentals and stick to basic strategies, and just wait for their opponent to slip up. That consistency often separates the winners from those who fail to advance. And always beware the bracket-busters – which is why diversification is critical for even the highest quality portfolio.
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