It’s Super Bowl time and once again my beloved Packers are not playing. They had a good season and beat the Giants and the top-seeded Cowboys in the playoffs. I attended the game against the Giants at football’s holy shrine, Lambeau Field, my first time attending a playoff game.
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, New England is an original AFL team while Atlanta is an original NFL team.
How has the Super Bowl Indicator done?
According the Wall Street Journal, the seven-year win streak for this indicator was broken last year when Denver won and the market had an up year in 2016. The article said that the indicator has held true in 40 of the 50 Super Bowls that have been played.
Quoted in a Wall Street Journal article before last year’s 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.
- 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 seven plus 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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