It’s Super Bowl time and once again my beloved Packers are not playing for the for the ninth consecutive year. They did have a great season improving to 13-3 from 6-9-1 in 2018. The good news is that I was able to attend four regular season games at football’s holy shrine, Lambeau Field, plus see them win a playoff game as well.
Every year the Super Bowl Indicator is resurrected as a forecasting tool for the stock market.
The indicator says that a win by a team from the old pre-merger NFL is bullish for the stock market, while a win by a team from the old AFL is a bad sign for the markets. Looking at this year’s game, Kansas City is an original AFL team while San Francisco is an original NFL team, clearly investors should be rooting for the 49ers.
How has the Super Bowl Indicator done?
In 2019 this indicator failed to predict the direction of the stock market for the fourth year in row. New England won the 2019 game and the market had an up year. The Eagles won the 2018 game and it was a down year for the markets. Overall the indicator has held true for 40 of the 53 prior Super Bowls.
Quoted in a Wall Street Journal article before the 2016 game, respected Wall Street analyst Robert Stoval said, “There is no intellectual backing for this sort of thing, except that it works.”
Some notable misses for the indicator include:
- St. Louis (an old NFL team that was formerly and is now again currently the L.A. Rams) won in 2000 and the market dropped.
- Baltimore (an old NFL team that was formerly the original Cleveland Browns) won in 2001 and the market dropped. Perhaps the markets were confused since the Browns became an AFC team (along with the Steelers and the Colts) as part of the 1970 merger.
- The New York Giants (an old NFL team) won in 2008 and the market tanked in what was the start of the recent financial crisis.
- In 1970 the Kansas City Chiefs shocked the Minnesota Vikings and the Dow Jones Average ended the year up, by less than 5 percent.
Is this a valid investment strategy?
As far as your investments, I think you’ll agree that the outcome of the game should not dictate your strategy. Rather I suggest an investment strategy that incorporates some basic blocking and tackling:
- A financial plan should be the basis of your strategy. Any investment strategy that does not incorporate your goals, time horizon, and risk tolerance is flawed.
- Take stock of where you are. What impact has the bull market of the past ten + years had on your portfolio? Perhaps it’s time to rebalance and to rethink your ongoing asset allocation.
- Costs matter. Low cost index mutual funds and ETFs can be great core holdings. Solid, well-managed active funds can also contribute to a well-diversified portfolio. In all cases make sure you are in the lowest cost share classes available to you.
View all accounts as part of a total portfolio. This means IRAs, your 401(k), taxable accounts, mutual funds, individual stocks and bonds, etc. Each individual holding should serve a purpose in terms of your overall strategy.
The Super Bowl Indicator is another fun piece of Super Bowl hype. Your investment strategy should be guided by your goals, your time horizon for the money and your tolerance for risk, not the outcome of a football game.
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Originally posted at https://thechicagofinancialplanner.com/the-super-bowl-and-your-investments/