THE SUPER BOWL INDICATOR

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THE SUPER BOWL INDICATOR

THE SUPER BOWL INDICATOR I hope everyone’s excited for Super Bowl 50 this Sunday!

What’s that? You don’t like football?

Well you better watch anyways, because the winner of the Super Bowl will determine if stocks are heading up or down in 2016.

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Mohnish PabraiEarlier this month, value investor Mohnish Pabrai took part in a Q&A session with William & Mary College students. Q3 2021 hedge fund letters, conferences and more Throughout the discussion, the hedge fund manager covered a range of topics, talking about his thoughts on valuation models, the key lessons every investor should know, and how Read More

Are you a Carolina Panthers fan? You might want to start buying stocks. Denver Broncos fan? Better start selling.

THE SUPER BOWL INDICATOR

Okay, so the winner of the Super Bowl won’t really have any effect on stocks – but there is a very interesting phenomenon going on (even if it is random).

It’s called the Super Bowl Indicator:

  • A win by an original National Football League team—from the days when there was an NFL and an American Football League, before the 1966 merger pact—means the market will be up for the year.
  • A win by a descendant of the AFL sends the market down.
  • Teams created since the merger count for their conference, National or American.

This means that a win by Peyton Manning and the Broncos on Sunday would keep the stock market in negative territory for the rest of the year. However, if Cam Newton and the Panthers win their first Super Bowl, then the stock market will rise by the end of the year.

Incredibly, the Super Bowl Indicator has had an 82% success rate, correctly predicting the direction of the Dow Jones Industrial Average’s movement in 40 of 49 Super Bowl years. The Indicator currently has a 7 year streak going.

Super Bowl Indicator - Super Bowl Predictor - 1992-2016

The last time the Super Bowl Indicator failed was in 2008, when the New York Giants (NFC division) won the Super Bowl (which meant stocks should’ve gone up for the year). Of course, 2008 marked the start of the Great Recession, with the stock market suffering one of the largest downturns since the Great Depression.[Can you really fault the Super Bowl Indicator though? 2008 was the year of the famous David Tyree Helmet Catch – which has become one of the most iconic plays in Super Bowl history and set up the New York Giants for the game-winning TD with 35 seconds left to seal the upset victory.]

THE SUPER BOWL INDICATOR

The Super Bowl Indicator was popularized by Wall Street analyst Robert H. Stovall, who credits the original idea for the indicator to a NY Times sportswriter, Leonard Koppett, who discovered the correlation back in 1978.

Stovall, now 90, is the first to admit that “There is no intellectual backing for this sort of thing except that it works.”

Obviously he’s right. The Super Bowl Indicator is actually a great example of correlation without causation, also known as a spurious relationship.

SUPER BOWL 50: THE DENVER BEARS VS. THE CAROLINA BULLS

But correlation without causation doesn’t mean we can’t have fun with the Super Bowl Indicator.

So what do you think?

With the DJIA down 6% for the year so far, does that mean the underdog Broncos have a good shot at pulling off the upset? Or is it the stock market that will pull off the upset, rallying back to positive territory on the arm and legs of Cam Newton?

Updated on

Ben Graham, the father of value investing, wasn’t born in this century. Nor was he born in the last century. Benjamin Graham – born Benjamin Grossbaum – was born in London, England in 1894. He published the value investing bible Security Analysis in 1934, which was followed by the value investing New Testament The Intelligent Investor in 1949. Warren Buffett, the value investing messiah and Graham’s most famous and successful disciple, was born in 1930 and attended Graham’s classes at Columbia in 1950-51. And the not-so-prodigal son Charlie Munger even has Warren beat by six years – he was born in 1924. I’m not trying to give a history lesson here, but I find these dates very interesting. Value investing is an old strategy. It’s been around for a long time, long before the Capital Asset Pricing Model, long before the Black-Scholes Model, long before CLO’s, long before the founders of today’s hottest high-tech IPOs were even born. And yet people have very short term memories. Once a bull market gets some legs in it, the quest to get “the most money as quickly as possible” causes prices to get bid up. Human nature kicks in and dollar signs start appearing in people’s eyes. New methodologies are touted and fundamental principles are left in the rear view mirror. “Today is always the dawning of a new age. Things are different than they were yesterday. The world is changing and we must adapt.” Yes, all very true statements but the new and “fool-proof” methods and strategies and overleveraging and excess risk-taking only work when the economic environmental conditions allow them to work. Using the latest “fool-proof” investment strategy is like running around a thunderstorm with a lightning rod in your hand: if you’re unharmed after a while then it might seem like you’ve developed a method to avoid getting struck by lightning – but sooner or later you will get hit. And yet value investors are for the most part immune to the thunder and lightning. This isn’t at all to say that value investors never lose money, go bust, or suffer during recessions. However, by sticking to fundamentals and avoiding excessive risk-taking (i.e. dumb decisions), the collective value investor class seems to have much fewer examples of the spectacular crash-and-burn cases that often are found with investors’ who employ different strategies. As a result, value investors have historically outperformed other types of investors over the long term. And there is plenty of empirical evidence to back this up. Check this and this and this and this out. In fact, since 1926 value stocks have outperformed growth stocks by an average of four percentage points annually, according to the authoritative index compiled by finance professors Eugene Fama of the University of Chicago and Kenneth French of Dartmouth College. So, the value investing philosophy has endured for over 80 years and is the most consistently successful strategy that can be applied. And while hot stocks, over-leveraged portfolios, and the newest complicated financial strategies will come and go, making many wishful investors rich very quick and poor even quicker, value investing will quietly continue to help its adherents fatten their wallets. It will always endure and will always remain classically in fashion. In other words, value investing is vintage. Which explains half of this website’s name. As for the value part? The intention of this site is to explain, discuss, ask, learn, teach, and debate those topics and questions that I’ve always been most interested in, and hopefully that you’re most curious about, too. This includes: What is value investing? Value investing strategies Stock picks Company reviews Basic financial concepts Investor profiles Investment ideas Current events Economics Behavioral finance And, ultimately, ways to become a better investor I want to note the importance of the way I use value here. It’s not the simplistic definition of “low P/E” stocks that some financial services lazily use to classify investors, which the word “value” has recently morphed into meaning. To me, value investing equates to the term “Intelligent Investing,” as described by Ben Graham. Intelligent investing involves analyzing a company’s fundamentals and can be characterized by an intense focus on a stock’s price, it’s intrinsic value, and the very important ratio between the two. This is value investing as the term was originally meant to be used decades ago, and is the only way it should be used today. So without much further ado, it’s my very good honor to meet you and you may call me…
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