Posted: Monday March 12, 2012 6:02PM ; Updated: Monday March 12, 2012 6:02PM
Scorecasting

Smart investing pays high dividends in picking NCAA bracket

Story Highlights

The key to piecing together a successful tournament bracket is staying objective

Looking for "this year's Butler" can often result in complete bracket disaster

Don't just chase teams on a hot streak; season records are a better indicator

By L. Jon Wertheim and Tobias J. Moskowitz

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What is Scorecasting?
In our book Scorecasting we tried to challenge assumptions and conventional wisdom in sports and explore new territory. Using principles of behavioral economics, experimental psychology, and lots of data, we tried to explain everything from the source of home-field advantage to the Cubs' ritual awfulness to why -- even before Thanksgiving night 2000 -- there was evidence that Tiger Woods was mortal.

We invited readers to suggest other topics to explore, other ways to look at sports a little bit differently. The response has been overwhelming. The goal is to use this space to keep the conversation going. If you're interested in contributing -- anything from suggesting analytic quirks to explore or sending in academic research -- feel free to comment below or send an e-mail.

There are 8,446,744,073,709,551,616 different ways to fill out an NCAA tournament bracket. So anyone advertising "locks" or "surefire strategy" is either exaggerating their credentials or dispensing advice aboard their hedge fund's diamond-encrusted yacht.

Still, there are ways to optimize your chances and tilt the odds a bit in your favor. Mostly, they entail treating your bracket as you would a portfolio, thinking of yourself as an investor -- and not someone who hates the ACC, loves the Wichita State team name and has a gut feeling this could be Missouri's year. With that in mind, here are some brackeetering principles.

Head over heart. Yes, we've all heard the stories about the sports agnostics who won the office pool because they picked the winning team based on its irresistibly cute mascot or where their favorite niece went to nursing school. So too are there lottery winners whose annual returns outstrip those of even the best stock pickers. But it's the exception not the rule. Just as emotion is often the enemy of the portfolio, the winning pools tend to be rational and conservative. We get a surge when we tout an upset. But looking for "this year's Butler" is a recipe for disaster.

Invest heavily in blue chips. It's been more than 20 years since a winner came from outside a major conference. Think of the big conferences of major sectors. Diversify among the ACC, SEC, Big Ten, etc. as you would, say, technology, retail, financial services. One of them is likely to hit.

Don't overvalue momentum. Almost half of the last 48 Final Four teams won their conference championship, but don't be completely seduced by recent performance, both good and bad. Just as investors can get burned "chasing returns," don't put too much stock in how a team has played over the last few games (Unless there's an obvious factor; a major injury, a star player returning, etc.). The bigger the sample size, the better our ability to forecast performance. So although both Kentucky and Syracuse are entering the tournament after defeats, the better predictor is their season record, 31-2 and 32-2, respectively.

Think of the 1/16 and 2/15 games as the equivalent of high-risk-high-reward penny stocks, generally not worthy of your portfolio. Since the tournament went to a 64-draw format in 1985, a 16 seed has, of course, never beaten a top seed. And the 15 seed has lost to the No. 2 seed more than 96 percent of the time. (Put another way: in the first two rounds, the top two seeds have gone a combined 208-4.)

Just as the occasional penny stock will pay massive dividends, one day a 16 seeds may upset a top seed and those that picked it will enrich themselves and feel like geniuses. But the odds aren't in your favor, especially since a) you only have four "draws" and b) a missed pick can ravage your bracket. In fact, pencil all No. 1 and No. 2 picks into the third round.

On the other hand, think of the No. 12 seed as a tech start-up on the verge of an IPO. Pick a 12 seed. Or pick all four 12 seeds if you're so inclined. For whatever reason, there's a real payoff here. Almost one-third of the time -- and in 19 of the last 22 tournaments -- at least one 12 seed has advanced to the second round. (Last year it was Richmond beating Vanderbilt.) What's more, historically, 12 seeds have beaten five seeds more often than 11 seeds have beaten six seeds. Nail this pick and it's a nice gain; miss it and your bracket isn't likely to combust.

Deep dive. You only have a few days to do it, but -- as with picking securities -- a bit of research can go a long way. Note, for instance, that Indiana's point guard, Verdell Jones III, was recently lost for the season with an ACL tear. Similarly, there's no prize for entering first. In the next few days, player A could be ruled ineligible, player B could be given unexpected medical clearance to return. Hold off a day or two on filing. The more information, the better.

Read the prospectus. Which is to say: be clear about the rules and conditions of your pool. Most use the seed-times-round formula. But be aware of any special formats or formulas and adjust your picks accordingly.

Be warned: playing the role of portfolio manager, may bleach out some of the fun of picking intuitively. It may make you the office dweeb. But it may also optimize your chances of smiling during "One Shining Moment."

 
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