San Jose, CA (Vocus/PRWEB) February 02, 2011
Loring Ward has just released a new study entitled: Misleading Indicators: The Predictive Value of the Super Bowl and Sports Illustrated Swimsuit Edition.
Loring Ward’s Portfolio Strategy & Research Group evaluated these two popular stock market indicators to see whether they were investment myths…or if they had any statistical validity.
According to the most popular version of the Super Bowl Indicator (SBI), if the winning team is from the original AFC, the market will have a negative year. If one of the original NFC teams wins, the market will have a positive year.
The data suggests that the Super Bowl Indicator has historically correlated well with market movements, correctly indicating positive and negative years 71% of the time for the Dow Jones Industrial Average (DJIA) and 79% of the time for the S&P 500 since 1967.
However, in the years when the AFC won — and the market was supposed to decline — the S&P 500 had positive returns 60% of the time. Also, in 1998 and 1999 the Denver Broncos (AFC West team) won the Super Bowl, yet the S&P 500 returned 29% and 21% respectively. Over the same period the DJIA returned 16% and 25%.
According to Dan Hoeck, a Portfolio Analyst with Loring Ward who conducted this research, “It is important to keep in mind with all these so-called market indicators, that correlation is not causation. Increased ice cream sales and shark attacks are strongly correlated, but that doesn’t mean Ben and Jerry are provoking Jaws. And the New Orleans Saints winning the Super Bowl in 2010 did not cause the market to have a positive year.”
According to another popular belief among some speculators, the Sports Illustrated: Swimsuit Edition historically has served as a good indicator in predicting the performance of the S&P 500. When the cover model on Sports Illustrated’s swimsuit edition is American, the S&P 500 outperforms its historical rate of return. When a foreign model is on the cover, the S&P 500 underperforms.
Loring Ward analyzed the performance of this indicator since the inception of the swimsuit edition in 1964 through 2010 and found its overall predictive success was 53%, little better than chance.
However, the study does note that these random, uncorrelated market indicators often perform better than professional money managers with decades of experience, large research teams, and access to enormous amounts of research and data. The SBI has been right 79% of the time for the S&P 500, while over the last five years, 61% of large-cap funds underperformed the S&P 500 Index.
“Active traders and market timers have all kinds of rationales for their investment approaches. But based on their poor, collective track record, they might be better off watching more football, or even flipping coins.” said Joni Clark, Loring Ward’s Chief Investment Officer. “Speculation is no way to build a portfolio. Instead, investors should focus on discipline, diversification and a prudent-long-term approach.”
Click here for the full study.
About Loring Ward
Since 1990, Loring Ward (LWI Financial Inc.) has provided Investment Management, Business Management and Practice Development to a select group of independent financial advisors and their clients.
Headquartered in the heart of Silicon Valley in San Jose, California, Loring Ward is dedicated to bringing science, reason and innovation to wealth management, with solutions tailored to the unique requirements of successful individuals, small businesses and institutions. Loring Ward’s Structured Investing programs are grounded in 80+ years of research from distinguished academics and economists, feature vast global diversification, and are engineered, monitored & managed with strict discipline. As of 1/11, Loring Ward has more than $6.3 billion in assets under management. For more information, please visit http://www.loringward.com.
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