Kaeppel's Corner: The New and Improved Super Bowl Indicator
Jay Kaeppel, Optionetics.com
February 7, 2011
As a Bear’s fan I found this year’s Super Bowl particularly painful to watch. From the botched National Anthem (note to next year’s anthem singer: more words, less octave changes), to the unfunny commercials (“3 million dollars for that!?”), to the to the, um - interesting – halftime show, and most importantly to the joy brought to people who proudly wear Styrofoam replicas of cheese atop their heads, there just wasn’t much in it for me. One other question – why do they do a flyover over the top of an enclosed stadium? Also, who pays for that and – just wondering – do they feel they got their money’s worth this time around?
Anyway, despite it all there was some comfort to be taken in the knowledge that two “original” NFL teams were involved. For this ensured that the “vaunted” Super Bowl Indicator would flash a “buy” signal for the stock market for the next 12 months. OK, for the record, I have never invested a dollar based on the results of the Super Bowl (unless you count “buying a square” as an investment) and am not recommending that anyone else do so either. Still, why not have a little fun.
The Original Super Bowl Indicator
The original Super Bowl Indicator states that if the team from the NFC or a member of the “old NFL” (Steelers, Colts, Cardinals or Browns – OK, technically the “old Browns’’ are now the “Baltimore Ravens”, no seriously) wins the Super Bowl then the stock market should advance over the next year. If not, then the stock market should decline over the next year. With an “old NFL” team (the Steelers) representing the AFC this year, a “Super Bowl Indicator buy signal” was a lock. Does this really matter? Well as it turns out, if you ignore 1998 and 1999 (when the stock market rallied strongly while the Super Bowl Indicator was “bearish”), one could almost, sort of, kind of make a pretty good case that it somehow does.
For the record, the method detailed involves buying (or selling) the Dow Jones Industrials Average at the close on the Monday after the Super Bowl and assumes that 1% of interest per year is earned while out of the stock market.
1967 - 1998
Figure 1 displays the growth of $1,000 invested using the Super Bowl Indicator versus a buy and hold approach from 12/31/1966 through January 26, 1998 (the day after the 1998 Super Bowl).
Figure 1 – Growth of $1,000 invested using original Super Bowl Indicator 12/31/66-1/26/98 (blie line) versus buy-and-hold (red line)
For the record:
-$1,000 invested using the SBI grew to $25,281 (or +2,428%).
-$1,000 invested only when the SBI was “bearish” declined to $417 (or -58.3%).
-$1,000 invested using a buy-and-hold approach grew to $9,817% (or +881.7%).
1998 and 1999
The Denver Broncos of the AFC won the Super Bowl in 1998 and 1999, thus rendering the SBI as “bearish” for two extremely bullish years.
For the record, between 1/26/1998 and 2/1/2000:
-$1,000 invested using the SBI grew to $1,030 (or +3%).
-$1,000 invested only when the SBI was “bearish” grew to $1,418 (or +41.8%).
-$1,000 invested using a buy-and-hold approach grew to $1,418 (or +41.8%).
2000 to Present
For the record, since 2/1/2000:
-$1,000 invested using the SBI grew to $1,296 (or +29.6%).
-$1,000 invested only when the SBI was “bearish” declined to $848 (or -15.2%).
-$1,000 invested using a buy-and-hold approach grew to $1,067 (or +6.7%).
The Full Record
Figure 2 displays the full history of the SBI versus a buy-and-hold approach
Figure 2 – Growth of $1,000 invested using the original Super Bowl Indicator (blue line) versus buy-and-hold (red line); 12/31/66-2/4/11
Figure 3 displays the growth of $1,000 invested only when the original Super Bowl Indicator is “bearish.” As you can see, expect for the aforementioned 1998-1999 period, there is not a lot to write home about.
Figure 3 – Growth of $1,000 when the original Super Bowl Indicator was bearish; 12/31/66-2/4/11
For the record, since 12/31/1966:
-$1,000 invested using the SBI grew to $33,437 (or +3,344%).
-$1,000 invested only when the SBI was “bearish” declined to $502 (-49.8%).
-$1,000 invested using a buy-and-hold approach grew to $14,854 (or +1,385%).
The “New and Improved” Super Bowl Indicator
As long as we’ve, er, devoted this much time already to the topic – and since I am lashing out today at other “old NFL” teams in general- why not take it “one step further” and identify some “culprits” in SBI “performance.”
First off, I contend that the Baltimore Ravens are no longer the “old Cleveland Browns.” First off, there is the team name (note “Ravens”, not “Browns”) and second there is the location (note ”Baltimore”, not “Cleveland”). I made an impassioned argument to this effect prior to the Super Bowl in 2001 (although it wasn’t my fault, I had simply been “over served”). If you don’t believe me just ask someone from Cleveland. Likewise, if you disagree just remember that your “old, outdated” version of the Super Bowl Indicator will suffer a –11% hit during 2001, whereas my “soon to be revealed”, “new and improved” Super Bowl Indicator will not. So let’s simply cross the Baltimore Ravens off the list as an “old NFL” team.
Under the category of “there’s one in every crowd” it can now be revealed that the New York Giants – one of the oldest NFL franchises of all – may be the enemy of all “Super Bowl Indicator Investors,” assuming that in fact there are any. The Giants won the Super Bowl in 1987, 1991 and 2008.
Yes, the 1987 Giants’ victory was initially followed by a rip-roaring stock market advance, but it all ended ignominiously when the market crashed in October of that year. And sure their 1991 Super Bowl victory was followed by a powerful 22% advance over the course of the next year. But when the Giants’ unexpectedly upset the then unbeaten New England Patriots in February of 2008 they set “Super Bowl Indicator Investors” up to ride out a staggering 37% in the following year. So “a change” is “clearly in order.”
So here are the “new and improved” Super Bowl Indicator rules:
-If the team from the NFC (excluding the “dreaded’ New York Giants) or a member of the “old NFL” (Steelers, Colts, or Cardinals but NOT the Baltimore Ravens) wins the Super Bowl, then buy and hold the Dow Jones Industrials Average until the next Super Bowl.
-Otherwise, hold cash.
The net effect of these “intuitive” changes is to keep the model in cash during 1987, 1991, 2001 and 2008. Figure 4 displays the growth of $1,000 invested using the “New and Improved” super Bowl Indicator.
Figure 4 – Growth of $1,000 invested using the “New and Improved” Super Bowl Indicator 1967 to Present (blue line) versus buy-and-hold (red line)
So what have we proved here? Well, if nothing else we’ve proved once again that hindsight is indeed 20/20.
Go Bears……….er, oh, never mind.
Staff Writer and Author of “Seasonal Stock Market Trends”
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