Tahoe-Truckee Market Beat: Broncos or Panthers? It’s Super Bowl Indicator time
January 25, 2016
Stock market terminology is full of sayings like, "Sell in May and go Away," "The January Barometer" and one of my personal favorites, "The Super Bowl Indicator."
It's just about that time of year to get the Super Bowl results and find out which way the stock market will head for the rest of the year.
The way the Super Bowl Indicator works is simple — if a team from the AFC, the old AFL, wins, it means the stock market will decline. If the NFC, old NFL, team wins, it means that it will be a good year for stocks.
If you want stocks to go up this year, you should root for the Panthers. A Broncos win will be bad news for stock investors. The Super Bowl Indicator has about an 80% accuracy rate.
As of January 22nd, the S&P 500 is already down -7.57% for 2016. Some investors like to hedge their portfolios at times to protect against downturns. There are a wide variety of hedging tools available, including futures, options and inverse ETFs. Hedging can be an effective strategy.
The term hedging has an interesting origin — it goes back to the 1600s when people would plant a hedge around their property to define their property line and provide some protection. Eventually the term "hedging a bet" began to be used to define or limit your risk when placing a bet.
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Since the Super Bowl Indicator has an 80% success rate, it occurred to me that betting on the Super Bowl at the local sports book could be a good way to hedge your stock portfolio.
Because a Broncos win will send the market down and a Panthers win will foretell an increase for stocks this year, investors who wish to hedge their stock holdings should place bets on the Broncos to win.
That way if the Broncos win, stocks will go down, but your win on the Super Bowl bet will offset the stock market losses. Sounds simple enough to me.
Seriously, please remember that correlation does not imply causation. In other words, just because it has happened 80% of the time doesn't prove that somehow the outcome of a football game has any impact on equity market returns.
If you would like to use some hedging strategies, there are a variety of good tools available to the average investor. If you like betting on the Super Bowl, bet on your favorite team.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.