It’s silly time in the stock market calendar. First there was the Santa Claus rally in December, then there is the incessant talk about the January Effect, then it’s the Super Bowl Indicator, then it will be “sell in May” and on and on. I am sorry to sound harsh, but these indicators are less than useless. They are little more than gimmicky topics that are cute to write and think about, but have no practical impact at all on anyone’s investing future.
The reason why is simple – the data sets from which these indicators are comprised are totally meaningless. For instance, this Sunday Super Bowl 49 will take place. That’s 49 random events that have no statistical relationship to one another. They’ve been played by different teams, with different players, in different years with differing circumstances, etc. And yet we have stock market prognosticators who found that when the team arbitrarily chosen into the National Football Conference (as opposed to the team who’s an arbitrary member of the American Football Conference) wins the game then the stock market does well. Aside from the fact that there is obviously no statistical relationship between football and the stock market, this data set is too unreliable to have any statistical meaning in the first place. Further, it says nothing about the magnitude of the stock market change. For instance, in 2008 the NFC won, but the stock market had a disastrous year.
People will go to any length to find a way to make money. Even if it means finding silly indicators that don’t help you make money. There is an endless number of useless stock market indicators, but these ones are particularly silly. I know because I’ve explored almost all of them. And while it’s fun to think about the correlations between certain random events and the stock market, you’d be a fool to let any of this guide your investment process.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.