I love March Madness.

That might sound like a strange thing for an Englishman to say. I grew up in England, where basketball barely registered on the sporting radar, and college sports certainly did not carry the same emotional weight they do here in America.

When I first moved to the United States nearly 30 years ago, one of the things that surprised me most was how quickly people would tell you where they went to school. Within minutes of meeting someone, the conversation might include their university, their team, and their lifelong loyalty to it. In England, I could know someone for years and never learn which university they attended.

But America has a way of converting you.

My oldest son started playing basketball in first grade and continued through high school. Over the years, I spent countless hours sitting on metal bleachers in school gyms, learning the game little by little. Eventually, I even coached his recreational team. Somewhere along the way, I became a genuine fan.

Over time, I began to notice something interesting. The way teams rise and fall during March Madness is not all that different from what happens in financial markets.

The Bracket Analogy

March Madness does not reward the teams that looked impressive early in the season. It rewards the teams playing the best basketball right now.

Higher-seeded teams tend to have advantages. They often have stronger coaching, deeper rosters, fewer injuries, and steady improvement throughout the season. Upsets certainly happen, but the teams that perform well heading into the tournament usually have the strongest chance of advancing.

Investing often works similarly.

A company may have strong fundamentals, talented leadership, and excellent products. Still, the market does not reward every good company equally. Some stocks move higher while others remain stagnant.

This is where the concept of relative strength comes in.

What Is Relative Strength Investing?

Relative strength first caught my attention when I was learning about investing and trying to understand why certain stocks and sectors outperformed others.

You could find multiple companies with solid fundamentals and capable management teams, yet only some would experience significant price appreciation. That led to a natural question. Is there a way to identify where market leadership is emerging?

Relative strength is a momentum-based investment approach that helps identify assets that are outperforming a specific market or benchmark. The concept can be applied to individual securities, sectors, or entire markets.

It is not about predicting the future with certainty. Instead, it helps investors recognize where momentum and leadership currently exist.

As I often explain to clients:

“Relative strength is not a crystal ball. It is a way to understand where market leadership is developing right now.”

The Numbers Do Not Lie

Everyone loves a Cinderella story in March. An underdog team knocking off a powerhouse in the opening rounds captures our attention. Investors are often drawn to similar stories in the market. The overlooked stock that suddenly skyrockets can feel just as exciting.

However, statistically, those surprises are the exception rather than the rule.

Historically, #1 seeds win about 99 percent of their first-round games, and the top three seeds win more than 70 percent of their match-ups. Lower-seeded teams win far less frequently.

Markets behave similarly. The difference in performance between the strongest sectors and the weakest sectors in a given year can be dramatic. Investors who allocate more weight to areas demonstrating strong relative strength may improve portfolio performance while potentially reducing exposure to weaker areas of the market.

Avoiding Emotional Bias

Anyone who has ever filled out a March Madness bracket understands the tension between head and heart.

You might favor your alma mater, admire a particular coach, or simply root for the underdog. Those emotional attachments can easily cloud objective decision-making.

Investing presents similar challenges.

Investors often become attached to compelling narratives. Think back to the dot-com excitement of the late 1990s or today’s enthusiasm around emerging technologies. It is also common for investors to hold onto a once successful investment long after its momentum has faded.

“A declining relative strength ranking can serve as an early signal that leadership is shifting. It can be similar to a team that started the season strong but ultimately was not built for March.”

Discipline Over Emotion

Both March Madness and investing remind us of an important lesson. Discipline tends to outperform emotion.

The teams that advance are usually the ones demonstrating the strongest performance heading into the tournament. In investing, markets often reward the companies and sectors that are currently showing the strongest leadership.

Relative strength does not predict the future. Instead, it helps us understand what is working today and provides valuable insight when making disciplined investment decisions.

In the meantime, enjoy the tournament and good luck with your bracket.