What March Madness Teaches About Our Biases

With the first week of the NCAA Men’s Basketball tournament (aka #MarchMadness) in the books, many of you are lamenting your “busted brackets.” Don’t feel bad. An estimated 30 million people painstakingly fill out their tournament picks every year, and there has never been a verified perfect bracket. The closest to perfection came in 2019, when a Columbus, Ohio, resident correctly chose the winners of the first 50 games of the tournament only to see his picks unravel in the Sweet 16 round. For years, billionaire Warren Buffett has offered a $1 billion prize to anyone picking a perfect bracket and he’s never come close to paying out.

Why we can’t predict winners consistently

It turns out our bracket-picking prowess gets clouded by many of the behavioral biases that derail investors. According to my friend Rory Henry @Roryshenry, business development director at Arrowroot Family Office and host of the AFO Wealth Management Forward podcast, here are the five most common biases that trip up bracket pickers and investors:  

1. Recency Bias occurs when people give more weight to recent events than historical data. For example, in the Big Ten Conference tournament held just before March Madness, Wisconsin's surprising victory might lead many to overrate them in the NCAA tournament despite a so-so regular season record. Conversely, Purdue, who many saw as a top overall pick throughout the season stumbled in the Big Ten Conference tournament and caused many bracketologists to remove them from their Final Four selections. If you’re keeping score at home, Purdue cruised through the first two rounds and Wisconsin was bounced in the first round.

 

2. Affinity Bias refers to our natural inclination to support teams or schools with which we have a personal connection or fondness. As a proud UCLA alum, Henry says he often picks the Bruins to win it all whenever they are in the tournament even if they’re not having a great year.

 

3. Overconfidence Bias occurs when individuals overestimate their knowledge or predictive abilities, which can lead to flawed decision-making. Watching a lot of college basketball might make someone overly confident in their bracket selections, possibly ignoring the unpredictable nature of the tournament and the potential for upsets.

 

4. Confirmation Bias is the tendency to search for, interpret, favor, and recall information in a way that confirms one’s preexisting beliefs. In March Madness, if you believe a perennial favorite like Kentucky is a strong contender, and all the pundits say so as well, you might ignore signs of weakness (youth, inexperience, turnovers) that could be exposed against veteran teams in the high-pressure NCAA tournament. No.3 Kentucky was sent home in the first round by No.14 Oakland, a small commuter school outside of Detroit.

 

5. Intergroup Bias happens when we favor our own group (in-group bias) and the negative evaluation of rival groups (out-group bias). For example, Henry said if you have a strong dislike for a team like Arizona due to its rivalry with UCLA, you might underrate Arizona's chances in the tournament, not because of their skills or record, but because of the rivalry. Same goes for Duke vs. Carolina, Michigan vs. Ohio State and Oregon vs. Washington. Henry said: “You can bet your bottom dollar Arizona won't be making past the Round of 32 in my bracket,” but the Wildcats have posted two convincing victories so far and are favored again in the Swett 16.

Then there are the intangibles like team chemistry and culture. As my friend Dan McMahon, Managing Partner of Integrated Growth Advisors (and a diehard UConn Huskies fan) wrote recently:

“While athleticism and recruiting budgets are important, the most successful teams in the tourney year after year are those with strong cultures built on trust, communication, and shared values. On these teams, every member of the roster from the stars to the walk-on benchwarmers are valued and has a unique role on the team.”

As I’ve learned over the years, filling out your brackets is like constructing a diversified investment portfolio. You’re trying to find the right balance between the “safe picks” (the top seeded, blue-chip stocks) and the “upset picks” (the undervalue lower seeds, aka small cap growth stocks) that earn you bonus points and separate you from the other players in your pool. That’s where team culture, like a strong company management and culture can trump financial statements and team stats.

 

Now, let’s look at how these bracket-picking biases relate to investing:

 

Recency Bias. Investors believe that last year’s top performing stocks and funds will repeat their success in the current year. In reality, last year’s top performers are usually in the middle or bottom third of the pack the following year. Remember how well tech stocks did in 2022 or how poorly energy did? What a difference a year makes. Same goes for all the bracket pickers going for last year’s Final Four participants San Diego State, Connecticut, Miami and Florida Atlantic. Only UConn and San Diego State remain this year. Miam and Florida Atlantic didn’t even qualify.

 

Familiarity Bias. It’s amazing how many people pick their alma mater to do well regardless of the team’s record or who else is in its bracket. People also tend to overweight teams that are in their geographic area because they hear about them all the time on the news, or because many family members are alums. The same goes for investors who overweight their portfolios based on the industry in which they work, or Fortune 500 companies located nearby.

 

The reciprocal of Familiarity Bias is Unfamiliarity Bias. That’s the tendency to ignore promising investments because you’re not familiar with the company or industry – or ignoring promising overseas markets because you’re not familiar with the language or the culture. Same goes for March Madness. West Coast hoops fans are far more likely to overlook East Coast powerhouses like UConn, North Carolina and Marquette, even though both programs have been in the national top 10 and make it to the Big Dance almost every year.

 

Overconfidence Bias is another derailer for both investors and bracket players. Most pool participants have massive confidence in top-ranked teams. Yet, only once in the history of the tournament (2008) have all four No.1 seeds made it to the Final Four. Some years only one of the four No.1 seeds will make it that far—you never know which one. Same goes for investors who overweight the Magnificent Seven or Dow 30 stocks.

 

Following the Herd. Oddsmakers love it when the American public stampedes over itself crowding into the same bets. History shows all four No.1 seeds almost never make it to the Final Four in the same year, but once again, those top four rated teams have the most votes to make it to the Final Four this year. And two of those teams (Houston and Purdue) have never won a national title despite years of success. Reminds me of all the investors who continue piling into Nvidia, Amazon, Tesla (and Bitcoin) despite their frothy valuations.

 

The “Halo Effect” comes into play when investors blindly follow the recommendations or investing choices of gurus such as Bill Gross and Warren Buffet. It’s the same when bracket pickers blindly follow the wonky statistical models of KenPom, 538, and RPI, or blindly pencil in the “sleeper” picks of TV analysts Kenny Smith and Charles Barkley, or former President Obama. As with the stock jockeys on TV, the picks of the expert hoop heads on TV rarely pan out.

 

Then there’s the fallacy of “breakeven,” a mental accounting trap that has plagued gamblers and investors alike for centuries. How many times have you held on to a losing stock for years, just waiting for it to get back to the original purchase price before you dump it? Likewise, how many people keep selecting BYU (31 tournament appearances without a title); Tennessee (26 appearances without a title); Alabama and Creighton (25 appearances without a title) to go far in the tourney because they have great records again and this time, you tell yourself, it’s finally their year. Or maybe, you tell yourself, it’s the Zags’ year because they’re long overdue for a championship.

Gonzaga University, formerly a little-known “microcap” from eastern Washington is now a mighty mega-cap in the world of college basketball. The Bulldogs have qualified for the NCAA tournament an amazing 25 straight years and have never come close to having a losing season during that span. They have an impressive record again this year. The majority of bracket pickers have the Zags brand penciled in for another deep run in the tournament – because they always do -- despite the fact that Gonzaga has never won the championship. EVER.

 

Conclusion

 

Whether investing, gambling, or taking part in the friendly office pool, always check your emotions at the door. Working with an objective, independent advisor is one of the best ways we know to prevent your intuitions from causing you to stray from your plan and making costly turnovers that will shake your confidence and derail your plan.

Who’s your pick to win it all and why? I’d love to hear from you and why.

#marchmadness, #behavioralfinance, #bracketsbusted

Why It’s Hard to Edit Our Own Writing?

Simple steps for breaking through

Whether you have three books to your credit or agonize over a monthly blog post, there are at least a dozen reasons why it can be challenging to edit our own writing effectively. How many of these traps below sound like you? If you answered, yes to three or more, I have some suggestions for you at the end of this post:

1.      Familiarity bias: We are intimately familiar with our own thoughts and writing. This can make it difficult to spot errors or areas that need improvement. Our brains tend to fill in gaps and overlook mistakes because we know what we intended to say.

2.      Emotional attachment: We often develop an emotional attachment to our writing, making it hard to be objective and critical when editing. We may be reluctant to make significant changes or cuts because we've invested time and effort into the piece.

3.      Lack of distance: When we're deeply involved in a piece of writing, it's hard to step back and view it with fresh eyes. We may be too close to the material to see it from a reader's perspective.

4.      Confirmation bias: We tend to focus on information that confirms our existing beliefs or interpretations. This makes it harder to identify flaws or weaknesses in our arguments or explanations.

5.      Blind spots: We may have blind spots or areas of our writing that we simply can't see objectively, whether it's due to our writing style, subject matter expertise, or personal biases. Sound familiar?

6.      Editing fatigue: Editing requires sustained concentration and attention to detail, which can be mentally draining. After a certain point, our ability to spot errors or willingness to make improvements will diminish.

7.      Difficulty with self-criticism: Some writers struggle with being overly critical or not critical enough when evaluating their own work. This makes it hard to strike the right balance.

8.      Perfectionism. I need every sentence to be perfect before I go on to the next. Instead, write quickly in a stream of consciousness style and then go back and revise, revise, revise. As Voltaire liked to say: “Don't let the perfect become the enemy of the good.”

9.      Data dumping. I want to share everything I know about a subject. Spoiler alert: Nobody cares how extensive your knowledge is. True genius comes from distilling complex subjects into easily understandable bite-size nuggets. Doing so will prevent you from succumbing to Smartest Kid in the Class Syndrome.

10.   Hubris. I handle complex multi-state tax returns, multimillion-dollar estate plans and retirement plans for Fortune 1000 executives. How hard can writing be? Probably harder than you think.

11.   Impatience/tech reliance. I don’t make my living as a writer. I don’t have time for this. Why can’t I just let AI/Grammarly and software do it for me? How well did those Cliffs Notes work out for you in college?

12.   Procrastination.  Writing is something many people find unpleasant. It’s easy to put it off and avoid it until the inevitable deadline comes bearing down on you.

Tips for editing your own writing

1. Take breaks from your writing. Set your timer for one hour or a specific time of day. Then hit the save button on your work. Walk away for several hours or better yet, for at least a full day. You’ll come back with a fresh set of eyes and usually a surprising amount of clarity.

2. Seek feedback from others – people who you can count on to give you to tell you the truth.

3. Read your work aloud. Is it cringeworthy? Where does it start to drag?  Does it sound like you?

4. Start with the end in mind. What are the three most important takeaways you want your reader to gain from reading your work? Write them at the top of your piece and make sure you have answered them clearly. In your conclusion, remind the reader the expert insights you just shared with them. Tell ‘em what you’re going to tell them. Then you tell them. Then you tell ‘em what you just told ‘em.

5. Create an outline before writing. Start simply with the introduction, then the purpose of your piece, followed by the three to four main points and a conclusion. After that, it’s just a matter of filling in the blanks.

6. Just get started. If you’re a procrastinator or perfectionist, taking the first step is the key. As the old saying goes: “You can always edit a bad page, but you can’t edit a blank page. Your first draft is supposed to suck. Just get your thoughts on paper and revise, revise, revise.

7. Get an accountability partner who will keep you on task. It could be a trusted colleague, good friend or even a writing coach who can make sure you have your outline, rough drafts and final drafts completed by the dates to which you committed. NOTE: I don’t recommend using your spouse as an accountability partner unless you can prevent criticism of your writing from spilling over into other areas of your relationship. That said, you can always do what our client Kyle Walters recommends and use the ‘Call Your Mom’ Strategy. She’ll always tell you the unvarnished truth.

8. Make a hard copy and use a pencil. Not to be anti-green here, but before you submit your final draft, make a hard copy of your work (print on both sides) and take out a pencil to do a final review of the piece. Personally, I’ve found it useful to read the hard copy to myself aloud. Using a pencil and reading aloud slows your brain down and forces you to listen – really listen -- to what you’re trying to say.

As Ernest Hemingway liked to say: “Write drunk, edit sober.”

Conclusion

It doesn’t matter how well you know the numbers, without having a solid command of the English language you won’t be taken seriously. After all, You're an Elite Professional; Don't Sound Like a Jamoke

 
#grammar, #businesscommunication, #selfediting, #thoughtleadership,