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March Money Madness – Diversification and Vegas Odds

Whether stocks or teams, it’s best not to put all your eggs in one basket.

With at least 13 million brackets submitted through ESPN alone and Las Vegas bookies expecting between $200 and $225 million wagered just in the state of Nevada during this year’s NCAA tournament, well, the madness is in full swing!

Last week we talked about picking teams for your bracket, and I think we’re all happy that we kept our day jobs (thanks Villanova!). I know a few of you who may have flown out to Vegas to watch games last week, and perhaps you decided to put a little money down on a team to win the whole thing. From our perspective, this is no different from logging in to an E-Trade or Scottrade account and putting a bunch of money in one stock pick, hoping it’s the next Apple or Facebook. 

Lately, I’ve been hearing many of you ask about companies tied to the marijuana industry, as more and more states are legalizing the plant. The general consensus is that these companies won’t go up in smoke, but will be on fire as they collect a lot of cash, whether from grow houses or storefronts stocking the special brownies and gummy bears.

Then there are those companies that are creating a chemical or synthetic format of the drug. While these types of companies could absolutely be a home run, the risk here is the possibility of the revival of federal regulations that would force the states to comply – and hurt these businesses. 

Long term, some of these stocks could bear fruit, just as some of the dot com stocks did survive. For every Pets.com, MySpace, Commerce One, Homestore.com, Enron or Worldcom, which were swallowed up by bigger fish (or went bankrupt), there were a few like Amazon, Facebook and eBay that have shown strong returns over the long term.

The key, whether you’re investing in the stock market or picking a team to win the tournament, is to study the landscape and diversify your picks, not just with one or two, but with a basket of five to seven companies (or teams) that could potentially be big long-term winners for you. (Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment losses.)

For all you Kentucky fans, if you bought a ticket last week for Kentucky to win the entire tournament, Vegas will pay you $850 for every dollar. If you’re a Louisville fan (I’m sure I’m quoted somewhere as saying you’ll never win), but if you had, you’d have walked home with double a Kentucky bet, at 1600 to 1. (No, I’m not rubbing it in.) If you happen to be a Michigan fan, you’ll get $3300 to the dollar if your team wins (nice win over Louisville by the way!). For all the Vandy fans out there, if your team had pulled off the big win, you’d be looking at $15,000 for your $1 wager. Arkansas fans would have walked away with $25,000. 

As for me, I put $10 down on the Princeton Tigers. At $75,000 to the dollar, I could have sent one of my kids there! (Hey, it was a nice dream while it lasted – and the Tigers played a great game!) Vermont fans also saw 75,000 to 1 odds – that would have been enough for a down payment on a house in Stowe during ski season, with plenty left over to entice Ben and Jerry to create your own ice cream flavor. How cool would that have been?

Of course, if you did happen to put a buck or two down on the winning team and you walk away with a jackpot, you could always choose to give us a call and fill in a few gaps in your financial plan. But where’s the fun in that? 

As always, if you know someone, whether a basketball fan or a bird-watcher who needs our help, hey we work with all types. Just give us a call. 

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