The Buckingham Report

While Seattle Seahawks fans continue to believe that they would have won if not for the officiating, even as Pittsburgh Steeler supporters celebrate their football team’s 21-10 victory on the scoreboard, equity investors didn’t need to worry about who came out the winner in Super Bowl XL. That is if they believe in the Super Bowl Indicator! This Wall Street maxim postulates that the stock market's direction for the coming year is predicted by the winner of each year’s big game.

As the legend goes, if a team from the old National Football League (NFL) wins, then stocks will rise. If a team from the old-American Football League (AFL), which merged with the old NFL in 1970, is victorious, then stocks are expected to fall. Of course, things get a little tricky as some teams did not exist in 1970, so the dividing line then becomes National Football Conference (NFC) versus American Football Conference (AFC) residency. A winner from the former is bullish and a winner from the latter is bearish.

As an aside, further complicating matters, some teams have relocated from their original homes. For example, the Baltimore Ravens (now an AFC team) were created when the old Cleveland Browns relocated to the Charm City in 1996. Since the old Browns were an original NFL team, the Ravens victory in Super Bowl XXXV was actually a bullish indicator.

This year, Seattle represented the NFC and Pittsburgh was one of the original NFL members, even though it is now in the AFC, meaning that no matter who won, the Super Bowl Indicator signaled that stocks should rise this year. For those bullish folks watching at home, the teams that we DO NOT want to see holding the Vince Lombardi Trophy at the end of each football season are as follows:

Buffalo Bills
Cincinnati Bengals
Cleveland Browns (New)
Denver Broncos
Houston Texans
Jacksonville Jaguars
Kansas City Chiefs
Miami Dolphins
New York Jets
New England Patriots
Oakland Raiders
San Diego Chargers
Tennessee Titans

Alas, as the table below vividly illustrates, the Super Bowl Indicator has been wrong in 6 of the last 8 years in terms of forecasting the direction of large-cap stocks (returns calculated by Ibbotson Associates). Nevertheless, in the preceding 31 years, it missed the mark only 3 times, meaning that in 30 out of 39 years, or 77% of the time, it has been on the money. The numbers are similar for small-cap stocks as in 4 of the last 7 years, the Indicator has misfired, yet it has been correct 31 out of 39 years, or a fairly remarkable accuracy rate of 79%.

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Despite the apparent predictive powers of the Super Bowl Indicator, we offer the friendly reminder that it is our belief that buying and holding a broadly diversified portfolio of undervalued stocks for their long-term appreciation potential is far more important to achieving investment success than making short-term investment decisions due to the outcome of a football game. Or as Bob Stovall, one of the first to popularize the Super Bowl Indicator in the 1970s, puts it, “I certainly wouldn’t put real money into the market based on the game.”

Of course, Mr. Stovall was quick to add, “But it’s nice to know if it’s on your side!”

Opinions expressed are those of John Buckingham, which are subject to change without notice and are not intended to be a forecast of future events, a guarantee of future results, nor investment advice. Performance results of such recommendations are subject to risks and uncertainties including (i) national and international economic conditions and fluctuations, (ii) economic conditions of particular industry and service sectors, (iii) the ability of the management of the company whose security is recommended to perform and achieve expected results of operations.

The information contained herein is believed to be reliable. However, such information has not been verified by us and we do not make any representations as to its accuracy or completeness.

About Al Frank Asset Management

Al Frank Asset Management, Inc. (AFAMI) is an Investment Adviser, registered with the Securities & Exchange Commission, editor of The Prudent Speculator (TPS) newsletter, editor and publisher of The Prudent Speculator TechValue Report (TVR) newsletter, and is the Investment Adviser for separately managed accounts and two value oriented no-load proprietary mutual funds.

Al Frank Asset Management, Inc. is committed to assisting our customers build wealth. We are a leading resource for value-based investor information in the financial community, where we combine our simple, proven philosophy of buying under valued securities for their long-term appreciation with our experience, hard work, and intensive research to give you actionable investment information that can be used on a daily basis.

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