Using Urban Legends to Beat the Market

Forget fundamental research, put aside those technical charts and, by all means, turn off those cable business programs. If you really want to know what's going to happen in the stock market, all you need to follow are a number of urban legends. Starting at the beginning of the year, the theory goes that if January is a good month for stocks, then so goes the rest of the year. If January is a lousy month, then you can't say that you haven't been warned. It's certainly fortuitous that the January indicator takes place early in the year rather than later when you've already lost a bundle and have little hope for recovery. Going back over the last fifty years, the theory has been right about 90% of the time. Chip Dickson, a Lehman Brothers portfolio strategist, has studied this phenomenon since 1970. According to his research, the S&P 500 rose 86% after turning in positive January results and fell 57% after falling in January. If you need greater confirmation, look no further then the Super Bowl. Here, you're in the money if the NFC wins. If the AFC wins, then the bears are coming. The degree of accuracy has been 80%. In the interest of full disclosure, this theory actually started by pitting the old AFL teams against the NFL teams. Unfortunately, fewer and fewer AFL teams are still playing and the expansion teams are completely muddying these waters. It's probably safe to assume that this theory may have to be retired in the near future. Hopefully, not all Super Bowl theories will fade as easily. Among my favorites is the disruption of water supply to major cities caused by all the toilets being flushed at halftime. Moving on in the year (i.e., during the summer doldrums), we can follow horse racing to see if there'll be a triple crown winner. Good for the horse, bad for the market. Unfortunately, this hasn't been tested since 1978 when Steve Cauthen was aboard Affirmed and the S&P 500 gained 6.9%. Although that year didn't help the theory, the two times prior to that (i.e., in 1977 when Jean Cruguet rode Seattle Slew to victory and in 1973 when Secretariat won with Ron Turcotte) the S&P 500 did drop -7.43% and -26.34% respectively. For golf fans, you might want to check out the "Tiger Effect." This one's new to me but, supposedly, if Tiger Woods simply plays in a tournament (it doesn't matter if he wins or loses), the market will rise on the following Monday. Are you a Baseball fan? Then your month is October. If the Mets win the World Series, that's not a good sign. Of course, if you're hit by lightning, that's also not a good sign. For the record, in 1969 the New York Mets beat the Baltimore Orioles 4 games to 1 and the S&P 500 fell -8.24%. Thanksgiving is supposedly a good time to make money if you buy on the Tuesday or Wednesday prior to turkey day and sell on the Monday of leftovers. Finally, the year 2005 kept the record intact for the market not turning in one single losing "5th year" in any decade in 120 years - not 2005, not 1995, not 1985, not ever! Now, let's just hope the record stands in 2015 and we're all around to see it. If you have any questions or comments, Chip would love to hear from you. You may contact him at dahlkefinancial@sbcglobal.net. You may also contact him at the Living Trust Network. It's web site is http://www.livingtrustnetwork.com. Copyright 2006. Living Trust Network, LLC. All Rights Reserved.