Having been born and raised in Michigan and being a lifelong Michigan Wolverines fan, I was beyond thrilled to see Tom Brady and the New England Patriots’ improbable comeback in Super Bowl LI. What makes it truly remarkable is that, according to ESPN Stats and Information, there were 20 different points in the Super Bowl in which the Atlanta Falcons had a 99% or better chance to win, including nearly halfway through the fourth quarter. In case you don’t know, the Patriots won the very first overtime Super Bowl game, 34-28.
As an investor, though, the Pats win may not be so enjoyable. This is because of an indicator that receives a lot of press this time of year—perhaps more than it should. I am of course referring to the Super Bowl Indicator, which alleges that the stock market’s performance in a given year can be predicted based on the outcome of the Super Bowl of that year. Specifically, the Super Bowl Indicator alleges that if a team from the American Football Conference (AFC) wins, there will be a bear market that year. Alternatively, if a team from the National Football Conference (NFC) or a team that was in the NFL prior to the 1966 NFL/AFL merger wins, there will be a bull or up market that year.
The indicator is accredited to Leonard Koppett while he was working as a sportswriter for The New York Times in 1978. However, there is no published evidence to support that fact. The phenomenon was the subject of a February 11, 1978, column by Koppett in The Sporting News entitled “Carrying Statistics to Extreme.” At that time, there had been 11 Super Bowl games and each time the winning team was originally from the either NFL or AFL. In six cases, the Super Bowl winner was from the pre-merger NFL and in the other five cases, it was an original AFL team. In all 11 years, whenever an old NFL team won the Super Bowl, the stock market was up for the year. And whenever an old AFL team won the big game, the market finished lower for the year.
As of January 2017, through Super Bowl L, the Super Bowl Indicator has been correct 40 out of 50 times, as summed up by Wikipedia and with the market’s performance measured by the S&P 500 index. To an investor, an 80% success rate is definitely noteworthy. Since 2000, the indicator has been correct 12 out of 17 times, which is still an impressive 71% success rate.
However, rational individuals should question a theory that espouses that the movement in the stock market is dictated by a professional football game. The adage “correlation does not imply causation” seemingly applies to the Super Bowl Indicator. As an example, in 2008 the New York Giants ended the New England Patriots’ perfect season by upsetting them in Super Bowl XLII. Although the Giants are an NFC team, which according to the Super Bowl Indicator points to an up year in the stock market, the S&P 500 dropped nearly 38% that year.
Even though Koppett is generally recognized at the creator of the Super Bowl Indicator, he spent a good amount of energy deriding the notion. In his 1978 Sporting News article, Koppett even said that the correlation means “absolutely nothing.” In the same article, he cited two tendencies in humans that are still applicable nearly 40 years later: “a desire to make money as painlessly as possible and excessive willingness to believe that statistics convey valuable information.”
In a 2011 Wall Street Journal article, Jason Zweig recalled a 2001 interview he did with Koppett. “It’s a joke!” Koppett said in reference to the Super Bowl Indicator. “It’s too stupid to believe.”
Zweig’s article also references research by Ed Dyl, then a finance professor at the University of Arizona. In 1989, Dyl found that the stock market went up 2.9% in the four weeks after the Super Bowl when an original NFL team won, versus a 4.6% loss when an original AFL team won. Dyl speculated that the results might occur not because investors actually believe in the Super Bowl Indicator, but because they think others believe in it.
So while the Super Bowl Indicator can be something to discuss around the company water cooler or at cocktail parties, it isn’t something that should be driving your overall portfolio construction.
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The Stock Superstars Report (SSR) publication was developed to educate individual investors on how to build a stock portfolio using a mix of strategies. The SSR is designed to provide all the information you need to manage a stock portfolio as well as to teach you about timely investment principles relating to the SSR portfolio and stock investing in general.