Commentary; Posted: 3/1/06
The Super Bowl and the Stock Market
David Purdy
Guest Columnist
The Pittsburgh Steelers participation in Super Bowl XL may be very positive news for the stock market.
As many sports fan know, Pittsburgh just played in its sixth Super Bowl game, but what some may not know is how the stock market performed in the five previous years that the Steelers played in the big game.
Letís look at the results of the Standard and Poorís 500 Index (S&P 500) during each of those five years.
ïSuper Bowl IX, 1975: S&P 500 rose 31.5 percent excluding dividends, (Steelers won)
ïSuper Bowl X, 1976: S&P 500 rose 19.2 percent excluding dividends, (Steelers won)
ïSuper Bowl XIII, 1979: S&P 500 rose 12.3 percent excluding dividends. (Steelers won)
ïSuper Bowl XIV, 1980: S&P 500 rose 25.8 percent excluding dividends, (Steelers won)
ïSuper Bowl XXX, 1996: S&P 500 rose 20.3 percent excluding dividends, (Steelers lost)
The data shows that the S&P 500 rose in double digits each time the Steelers played in the Super Bowl. The average return in those five years was a remarkable 21.8 percent.
So far this year, the S&P 500 is up 3.1 percent, as indicated below, which is quite respectable considering we are not even past February yet. While past performance is no guarantee of future results, it looks like the Steelersí Super Bowl magic touch continues.
So what is the logic for the connection between the Steelers playing in the Super Bowl and the stock market performing well?
After doing exhaustive research, we reached a stunning conclusion. It turns out there is absolutely no logical connection between the Steelers and the stock market.
Of course, we knew that, but this absurd connection points out a mistake that some investors make. The mistake is called data mining.
Data mining occurs when investors examine historical evidence and identify patterns and causal relationships when none actually exists. The Steelersí Super Bowl/stock market performance correlation is a good example. The evidence shows the market does well when the Steelers play in the Super Bowl. However, we know there is no reasonable economic reason why that is the case; it is simply due to happenstance.
Investors can get into trouble when they make trades based on historical patterns that have no basis in reason.
On the other hand, when successful investors find patterns, they try to find logical reasons why the patterns exist and why the patterns may cause positive or negative performance in the stock market.
When no logical reason is found, these investors file the patterns in an ìinteresting but not usefulî file.
When logical reasons are found, that may be a time to trade and reposition the portfolio. Clearly, the Steelersí Super Bowl participation should be filed in the ìinteresting but not usefulî file.
Writer David Purdy is president of Wealth Management Midwest, Forest Lake, and offers securities through Linsco/Private Ledger, Member NASD/SIPC And an investment advisor.
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