Correlation, Causation and The Super Bowl

The Patriots beat my Steelers and will play the Atlanta Falcons in the Super Bowl next Sunday. 

The Pats are an AFC team, which means I have two reasons to root against them:

  1. They beat my Steelers (grrr!). 
  2. When an AFC team wins the Super Bowl, the markets are usually down that year.  It's called the Super Bowl Indicator.

From Investopedia:

DEFINITION of 'Super Bowl Indicator'
An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in the stock market for the coming year, and a win for a team from the old NFL (NFC division) means the stock market will be up for the year.

So go Falcons!

Clearly, the Super Bowl Indicator is utterly ridiculous. The absurdity of taking action on something like this is (hopefully) obvious. 

Correlation is not causation.  Just because two things happen at the same time does not mean one caused the other - even if they occur together frequently enough for us to assign them nomenclature. 

The financial media love this stuff because it gives them something to talk about. Here's some others, all equally as ludicrous:

The Trump Bump - The markets up.  Trump was elected.  Therefore, the markets are up because Trump was elected. 

The Santa Claus Rally - The markets are up.  It's the end of the year.  Therefore the markets are up because it's the end of the year. 

The January Effect - The markets are up.  It's January.  Therefore the markets are up because it's January. 

Sell in May and Go Away - The markets are down.  It's May.  Therefore the markets are down because it's May.

Except for the election, all of these are true 70% - 80% of the time.  That's why they're a "thing".

70% of the time the markets are up in a year an NFC team wins the Super Bowl.   70% of the time the markets are up the last two weeks of December.   70% of the time the markets are up in January.   70% of the time May through September are the worst months for the markets. 

Know what else works 70% of the time? 
70% of the time the stock market is up in any given year.*   

Know what works 89% of the time? 
89% of the time the stock market is up over any 5 year period.*

Know what works 96% of the time? 
96% of the time the stock market is up over any 10 year period.*

Know what works 100% of the time? 
100% of the time the stock market is up over any 15 year period.*

So don't worry about selling in May and going away or who wins the Super Bowl.  If you're invested in a well-diversified portfolio, over the next 5-10 years your portfolio has a very high likelihood of being up.  And over the next 15 years it most certainly. 

 

*Based on rolling total returns of the S&P 500 since 1930