What a nutty time of year. March Madness.
CNBC just stated that corporate losses are conservatively estimated at $1.9M per HOUR during March Madness due to people watching basketball during biz hours. $1.9M per hour. Add to that factoid that GM spent over $80M last year on advertising during March Madness and boy aren’t we taxpayers glad that GM payed us back the over $20B (yes, B, billion) from the government stock bailout offered in 2009 when they filed for bankruptcy.
Financial markets and the consumer fascinate me. How a company can file for bankruptcy, pay back THAT much in such a short period of time and then write a check for $80 million to advertise during a few basketball games. But I digress.
Either way, you know you’ll take a peak at the games–so take a pick! Kentucky has been called the “no alpha bubble pick” by a CNBC guest earlier this week and most agree. Said another way Kentucky is like the S&P 500 or SPY.
I know little about basketball but it doesn t take being an NBA’er to see why Kentucky is the ho-hum pick as I say the same of the S&P. The S&P or market “proxy” adds zero “alpha” to one’s portfolio returns. Alpha is simplistically defined as the excess return over a benchmark. So, the S&P 500 returns 9%, your investment manager returns 9.5% your manager “added .5% ALPHA.” Everyone is expecting Kentucky to win, you invest in Kentucky, Kentucky wins; ZERO Alpha (not really, but you get the jist, right?)
However, if you were the smarty-pants who picked (guessed, threw a dart and got lucky, perhaps?) UAB to to upset 3rd seed Iowa State yesterday—well, lets just say that you just picked up some serious ALPHA in your b-ball bracket “portfolio.” Ya with me now?
Adam Warner, writing for Shaeffer’s Trading Floor Blog heard the negative Kentucky alpha CNBC sound byte, too. He explains it in terms of the odds and the return on who you may bet on in the office pool (one of the offices where they’re losing the $1.9M per hour, I suppose)—that makes perfect sense too, when you think in terms of picking UAB vs. Iowa State in yesterdays upset. Iowa State was pegged with a 90.8% chance of winng yesterday—WRONG.
So let’s bring this home and shun the idea that we all need to be non-productive just becuase March Madness is on TV today–the Kansas game tip off isn’t until 12:15 EST after all. Even President Obama is on board with a March Madness bracket—although he missed the Iowa State upset, go figure.
If the S&P 500 is the zero alpha, and possibly the negative alpha team in the line-up—what “team” do you pick to add positive alpha and high fives from your fictitious game day (portfolio) buddies? I’m picking the Russell 2000 and the Nasdaq. Nothing crazy like picking UAB yesterday (I’m not gonna lie to you; I had to look up who UAB actually was…Go BLAZERS–CONGRATS!) but better, more lucrative picks than the S&P 500.
Picking the Russell 2000 (small caps) or the tech-heavy mid-cap biased Nasdaq index over the S&P 500 will be like picking Duke or Villanova—not runaways, but NOT Kentucky. Those teams (figuratively and literally), have great track records both in basketball and in the markets—pick them and the returns may be better, this go ’round visa vie Kentucky and the S&P 500.
The big dogs of the S&P 500 have had their run—the strong dollar and continued low interest rate environment will bode well this year for small caps and the Nasdaq. Don’t get me wrong, the S&P 500 will continue to do just fine this year—just as I suspect Kentucky will, too. For me, however I don’t want to do “just fine”—while markets are providing more opportunity to score big, I’d like to go for a little more alpha than the S&P is offering right now.
My March Madness pick to win? I’m staying in the ACC and going long with NC State. Who’s your pick? Send me your picks and we’ll publish the winner and throw you a prize.
Want a juicier, more “UAB-esque” pick for your portfolio? Short oil and stay long the dollar. Risky, but a good there’s always a chance with a Birmingham in the offing.
For a non-March Madness approach to growing your portfolio’s bottom line, stay with the modest to high-alpha picks, or simply go Alpha, with Alphavest.