Tahoe-Truckee Market Beat: The Super Bowl Indicator and stock investing
January 23, 2017
OK, I know I write about this every year, but I think it is an interesting topic. It combines a couple of my favorite activities, stock investing and football.
The way the Super Bowl Indicator is supposed to work is that if the team from the NFC, the old NFL, wins it will be an up year for the stock market. If a team from the AFC, the old AFL, is victorious that is supposed to foretell a decline in stocks for the year. The Super Bowl Indicator has about an 80% accuracy rate.
So, what it means is that you should root for the Atlanta Falcons if you're invested in stocks and want to see a bull market this year. In the event that you're short the market and want to see it fall, you might want to root for the New England Patriots.
One thing that occurred to me is that you could possibly place a bet on the Patriots at your favorite sports book as a hedge for your stock investments. That way, if the Patriots win and the Super Bowl Indicator works, the win from the sports bet could potentially offset the losses in your portfolio if the market drops.
Not to change the subject, but the market term, "hedge" has an interesting background. It goes back to medieval times when people would plant hedges around their property as a form of defense. To hedge in the market today means that you place a defensive strategy with your investments, like a put option.
Seriously, I don't recommend that you use sports betting as a way to hedge your portfolio. The reason that the Super Bowl Indicator is so interesting to me is because stock market jargon is full of indicators like this that are supposed to forecast market direction and in reality are every bit as meaningless.
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There's an old saying that, "correlation does not imply causation." I love that saying. Just because two sets of data are highly correlated, it doesn't mean that there's a reason for it, might just be total coincidence.
My advice is to make sound long term investments based on fundamentals and realize that there will always be aspects of the future that are unpredictable, regardless of who wins a football game.
I suggest you enjoy the game and root for your favorite team without worrying about the game's effect on the stock market.
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.