Some investors really are this stupid

Posted by Robin Powell on February 6, 2017


As soon as I heard I was straight on the phone to my broker.

“Haven’t you heard? The Patriots won. Sell everything.. What? I know the markets haven’t opened yet, but as soon as they do I want everything gone!”

OK, you’ve got me. I don’t have a broker, and he wouldn’t earn a penny off me if I did. But I wonder how many people have actually chosen to sell today, after New England’s 34-28 victory over the Atlanta Falcons?

I’m referring to the so-called Super Bowl Indicator. It was apparently a sportswriter by the name of Leonard Koppett who made the remarkable discovery in the 1970s that if a team from the American Football Conference, or AFC, wins gridiron’s most coveted prize, then a bear market usually follows; but if a team from the National Football Conference, or NFC, comes out on top, then stocks go on a bull run.

I’m assuming Mr Koppett became so rich he never had to work again because — seriously, now — the Super Bowl Indicator actually works, or at least it works most of the time. Since 2000, the indicator has been right 12 out of 17 years — a success rate of 70% — and since the Patriots are an AFC outfit we can presumably now expect, at the very least, some sort of market correction. 

The Super Bowl Indicator is, of course, complete and utter nonsense. But that still hasn’t stopped at least half a dozen semi-respectable media outlets in the United States discussing its significance over the last few days.

I even read an article the other day — I still can’t decide if it’s a spoof or not — suggesting that one stock that’s likely to buck the downward, Patriots-induced trend we’re about to witness is the healthcare company UNH. Apparently the stock has seen positive returns through year’s end after every previous New England Super Bowl win, with an average gain of 26%.

Nor is the Super Bowl winner the only wacky market indicator that pundits like to talk about. There are, for example, indicators based on the height of ladies’ hemlines, lipstick sales, whether or not Boston has a white Christmas, or whether the cover model on Sports Illustrated’s Swimsuit Issue is American or from overseas. Some people, I jest not, start buying stocks when butter production surges in Bangladesh.

If this all sounds fanciful, be assured that there is academic evidence which confirms that some investors really are this bonkers.

In 2014, three academics looked at superstitious behaviour in the Taiwanese stock market. In Chinese, the number eight sounds like the word for prosperity. The number four, on the other hand, sounds like the word for death. (That’s why Chinese buildings often have a third and a fifth floor but no fourth, in the same way that many streets in the West don’t have a Number 13.)

Anyway, the researchers measured the strength of traders’ superstitions by the regularity with which they chose prices ending in eight, and how keen they were to avoid the number four. Remarkably, investors were more than 50% more likely to place an order ending in an eight than in a four. As a result the daily returns of the most superstitious quintile of investors were 0.03% lower than the least superstitious. That equates to an annual shortfall of a whopping 8.8% a year.

More recent research — by David Hirshleifer at the University of California, Irvine, and Ming Jian and Huai Zhang from Nanyang Technological University — identified similar patterns of behaviour. Their focus was on Chinese IPOs, and the extent to which investors chose or avoided different offerings depending on their listing code. “In summary,” their paper concluded, “our findings are consistent with market prices being biased by superstitious beliefs about lucky numbers.”

OK, Asian culture is far more superstitious than ours in the West. And only a minority of investors, I would hope, are fooling enough to pay much attention to the Super Bowl Indicator. But, make no mistake, investors do some crazy things — and stop pretending that you’re not prone to act a little bit irrationally yourself. 


ROBIN POWELL is a freelance journalist and the founding editor of The Evidence-Based Investor. Based in Birmingham, England, he founded Ember Television and Regis Media, and he specialties in helping disruptive financial firms to grow. He also campaigns for a fair, transparent and sustainable investing industry. You can follow him on Twitter at @RobinJPowell.


Robin Powell

Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.


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