Quarterly Commentary

March Madness …

As we write, the NCAA Men’s Basketball Tournament is wrapping up and by the time you read this, there will likely be a champion. Every year, millions of sports enthusiasts complete a 63-game bracket to predict the winning team in each game. What are the odds of a perfect bracket?

Given a 50-50 chance (think coin flip) of predicting the winner of each game, odds of a perfect bracket are 1 in 9,223,372,036,854,775,808. That’s 9.2 quintillion, or 9.2 billion billions. Not surprisingly, no one has ever completed a perfect bracket. Even when experts are involved, whether Vegas bookmakers or armchair enthusiasts, odds improve to a mere 1 in 120 billion. To give final context, it is estimated that there are 7.5 quintillion grains of sand on the earth. So one would have a greater probability of selecting one correct grain of sand randomly out of all the possible grains on the planet than for an average person to correctly predict the perfect bracket. Crazy, right?

Why is it so hard, if not impossible? The games are mostly uncertain from the beginning and each mistake, missed shot, turnover, and buzzer beater can change the entire outcome, sometimes very dramatically (just watch the last few minutes of the Duke vs. UConn game on YouTube). This is why trying to predict outcomes in complex systems with more variables than you can count is fruitless … and can be dangerous in personal finance.

Not only are stock and bond prices fluid from moment-to-moment but prices move based on countless variables. Consider the changes we have seen this calendar quarter alone. Conflicts in Venezuela, and Iran have dominated the headlines lately and, as a result we have seen wild swings in stock prices as well as dramatic fluctuations in the price of gold, silver and oil. Combine global uncertainty with the unpredictable political environment here in the US, and the continued evolution of artificial intelligence you could say that the world is ever-changing! Trying to predict the price or direction of securities in the short run with all the potential pricing variables is fruitless, at best — it’s madness.

So, what does work? There are core principles that we adhere to that are time-tested, evidence-based, and effective for those that want to preserve their life savings and lifestyle over the decades. These include but are not limited to global diversification, asset allocation, expected returns of asset classes, reversion to the mean, as well as planning for cash flow needs and taxes. Fortunately, not only have these principles proven themselves over time but are largely within our control. As, it seems, human behavior can be our own worst enemy, a little coaching can be helpful.

We consider all of the potential variables when it comes to guiding our clients over time. More importantly though, we choose to focus on the variables that are meaningful to accomplish our goals and filter out the noise as best we can. We certainly don’t like to see military conflict or global and domestic chaos. But with a proven investment philosophy, a time-tested strategy and thoughtful implementation, we believe we can be the winning team at the end of the day.

So, avoid the media madness and please call us for perspective and for any other financial issue.

Your friends at Fort Vancouver Investment Management, LLC