Even before American Pharoah captured the Triple Crown, someone had looked back to see how the market had done historically in the wake of such a feat. Bespoke Investment Group showed the performance of stocks in the years when a horse won all three races, and it wasn’t very good. As is the case these days, the piece from Bespoke was tweeted and retweeted and pasted into blog posts and talked about by market pundits.
In a posting for Bloomberg, Barry Ritholtz warned against such dangerous connections between correlation and causation – including the most famous supposed relationship between stocks and sporting events, the Super Bowl indicator. Nonetheless, come February, we will once again have it thrust upon us by those more interested in generating traffic than delivering enlightenment.
It’s in good fun, isn’t it? Supposedly, but the problem extends into more serious corners of market discourse. Anyone with a computer can plot two variables across time and, using different Y-axes, make it look like there’s something there. In a manner of minutes the image can go viral and soon everyone is using some of their valuable time to talk about it.
Such methods are not just the province of amateurs touting their ideas online; reports and presentations prepared by professional investors often contain questionable charts and weak assertions. The silliness of the relationships might not be as obvious as those of the Super Bowl indicator or the Triple Crown indicator (which is now destined to be tracked and reported on going forward), but the weaknesses in the logic are there just the same.
(One interesting sidebar. Note that the Bespoke compilation did not include the results of the market in 1919, when Sir Barton won the Triple Crown. No doubt that’s because investors are trained to think that history started in 1926, when the Ibbotson series does.)
These recent events reminded me of “the Hazeltine indicator,” which I first commented on in early 2008. I was the historian of Hazeltine National Golf Club for many years and I wanted to write an entertaining piece for the club’s newsletter. Hazeltine was getting ready to host the 2009 PGA Championship at a time when the first cracks of what became the world financial crisis were starting to show. I had previously noticed that in advance of each major event at the club, there was a notable bout of economic trouble.
As you can see from the end of the newsletter story, which appears below, I gave a seven-year warning to the members to prepare for weakness this year, since Hazeltine would be hosting the Ryder Cup Matches in 2016. If things start going haywire soon, remember: You heard it here first.
Investment professionals are always searching for relationships in the past that they think will tell them something about the future. A couple of years back, I hit upon one such indicator. A sentence in a recent New Yorker article reminded me of it.
Talking about the current angst regarding the economy, it said, “It’s 1929, 1969, 1981, 1990, 1997, or 2001 all over again.” Now think about when we have hosted men’s major championships: 1970, 1991, and 2002. You can even throw in the Senior Open in 1983.
That’s right, each of those championships was hosted right on the heels of economic weakness. Despite the difficulties that arose from the tight corporate and consumer spending following those slumps, Hazeltine has always managed to outperform expectations. That is a testament to our members and other volunteers.
Right on schedule, the economy is now wobbly in front of next year’s PGA. If you didn’t get your portfolio positioned well to take advantage of it, remember that there’s always another championship coming to Hazeltine. Mark your calendar now to be prepared for the weakness in 2015.