Let’s talk a little March Madness and market speculation. Shall we?
Way back on March 13, 1986, Microsoft (Ticker: MSFT) went public with its initial public offering at a price of $21 per share. The brand new software company had a market capitalization of around $777 million, or $2.14 billion in 2023 dollars at the time.
Meanwhile, once again in 1986, International Business Machines, or IBM, (Ticker: IBM) held the position of the country’s largest public company boasting a market cap of $34.6 billion, which is equivalent to $128.12 billion in 2023 dollars. Not just that, they were literally still making “business machines” back then.
Back then, if your financial advisor would compare IBM and Microsoft as investment choices, he or she would likely describe IBM as the “blue-chip,” “blueblood” or “heavy favorite.” On the flip side, a stockbroker in the mid-80s might refer to Microsoft as the “underdog,” “upstart” or “longshot” when matched up against the juggernaut IBM.
Nearly 40 years later and consider how the two companies measure up. IBM has a $235 billion market cap and Microsoft has a $2.89 trillion public valuation. That’s right, “trillion” with a “t.”
All of this goes to show that sometimes, but most certainly not always, stock speculation pays off in spades for those who pick the proverbial David over the proverbial Goliath. Moreover, it proves that the market’s Dukes, Auburns, Floridas and Houstons – all top seeds in their NCAA Men’s tournament brackets this year – don’t always come out on top.
When it comes to speculation, Ray Baraldi, senior financial advisor at 2/13 Strategic Partners, believes the client needs to have a desire and appetite for it. He points out that true speculative investments can go to zero, which is not easy for the majority of people to stomach. For that reason alone he does not believe that speculative investments should be a requirement in all client portfolios.
For those clients that do want to bet on a flyer or two, Baraldi typically suggests around a 2 percent portfolio allocation.
“A very aggressive client may try to push that allocation to 5 percent but we would be getting uncomfortable beyond that percentage,” Baraldi said. “Typically the speculative positions are one-offs and separate from the portfolio. These are high conviction speculative plays that a client believes has legs for the future.”
When it comes to this year’s Madness, Baraldi’s longshot is Drake, primarily due to their coach Ben McCollum, who he calls “a great X’s & O’s guy.”
“This is his first year in D1 after winning 4 D2 titles. They have the slowest pace on offensive since the shot clock came to college basketball in 1986. Because they play so slow if they out-execute their opponents they can win. They also have a stud point guard Bennett Stirtz who can control the game,” Baraldi said.
Elsewhere, Dan Brady, wealth manager at Savvy Advisors, emphasizes the importance of the "Know Your Client" (KYC) principle when it comes to speculation. If a client's risk profile aligns with speculative activities, he said he is open to allocating a portion of their portfolio to a shorter-term approach. However, he maintains that educating clients on the distinction between investing and speculating is crucial.
“I define speculating as aiming for quicker profits within a shorter time frame,” Brady said. “I don't earmark a specific portfolio percentage for speculation. Instead, I consider it vital to maintain funds for capitalizing on specific market opportunities as they arise.”
Finally, Ken Roban, wealth manager at Reservoir Road Wealth Management at Steward Partners, defines a speculative stock play as “a higher-risk investment opportunity with the potential for asymmetric upside.” In his view, speculations come in many forms and certainly have a place in a client’s portfolio, as long as the outcome is clearly defined and the risk is limited.
“Specifically, if you can make a bet that won’t cause significant damage to your portfolio if it doesn’t pan out, but could provide substantial returns if it does, then you have a worthwhile speculation. This could be a company that isn’t generating substantial cash flows yet but might possess a promising new technology or drug. It might be a bet on a new market, an emerging economy, a distressed bond, or even bitcoin,” Roban said.
Applying this logic to NCAA tournament brackets, Roban calls it fine to bet on a 12-seed or 13-seed in the first round of the tournament. Nevertheless, he warns against betting on one to cut the nets down. He points out that the 12-seed has historically won about 35 percent of the time, and the 13-seed has won over 20 percent of the time. A 12-seed has advanced to the Elite 8 twice, while no 13-seed has made it past the Sweet 16.
“When filling out your brackets, never let emotion override common sense. Since my alma mater didn’t make the tournament this year, it’s easier for me to stay rational. That said, I’m still rooting for my hometown team, St. John’s, after all, they’re a 2-seed, and 2-seeds have won six times!” Roban said.
From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.
Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.
“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.
Sellers shift focus: It's not about succession anymore.
Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.
RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.
As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.
