Are You Lucky or Wrong?
It has been said that there are two types of forecasts: lucky or wrong.
Last week I told you about my hatred of early-year predictions, this week I’m going to expand on that so you don’t have to be either lucky or wrong.
While many analysts wisely base their predictions on reams of data and complicated chart patterns, others have utilized weird and whimsical stock market indicators.
One of the most ridiculous is the Super Bowl market indicator, and with this year’s game coming up in a couple weeks, let’s check in on the history of this shockingly successful forecasting tool.
The Super Bowl Indicator tracks the market performance depending on which team wins the Super Bowl. It’s a rather simple tool: If a team from the AFC wins the game, we’ll have a bear market for the year. If the NFC team wins, however, the market should do quite well. In that case, you may want to start rooting for the Cowboys or Packers...
The phenomenon was first noticed by sportswriter Leonard Koppett in the 1970s, and at that point, the predictions had been 100% correct. Today, the Super Bowl indicator has been right 80% of the time — 40 out of 50 times the correlation held up. Wall Street analyst Robert H. Stovall has dubbed himself the official custodian of the indicator, even though he has admitted it has no basis in reality. “There is no intellectual backing for this sort of thing, except that it works.” Stovall told Forbes.
There are also some other bizarre indicators that are much more based in reality…
The “Unclaimed Corpse Indicator” is perhaps the darkest one of all…
This market barometer tracks the number of unclaimed bodies at morgues. The thinking is that when financial times are getting tough, desperate families leave their loved ones' bodies unclaimed to avoid having to pay end-of-life costs like funerals and burials.
When nobody steps forward to claim a body, the state ends up taking care of those costs.
In 2009 at the height of the financial crisis, the Los Angeles Times reported that “36% more cremations were done at taxpayers' expense in the last fiscal year over the previous year.”
There are some others that aren’t quite as horrifying...
Baked Bean Sales Indicator
When times get tough, most people start tightening their belts. One obvious way this reflects in the market is sales for canned food. The idea is simple: it’s cheaper and easier to feed a family with low-cost food like canned beans.
In the UK, baked bean sales jumped 22% from 2008 to 2009. Pricier options like organic food dropped over 10% in the same time frame.
The same concept applies to discount shopping. Dollar General (NYSE: DG) saw its stock rise 140% from the start of the recession until the economy stabilized in 2012.
Other indicators can reflect when the market is doing well…
The Garbage Indicator
When the economy is chugging, more goods are produced. More products flying off shelves means more trash is being created. A pretty simple concept…
Economists have actually backed this one up. One study has shown that there is an 82% correlation between GDP and trash produced: about the same percentage as the Super Bowl Indicator, but with tangible evidence to prove it.
Now some of these indicators seem to make sense, but when my money is at stake, I don’t want to rely on beans, trash, and football.
Especially because you have to wait until results like these are reported before doing anything about them. Like I mentioned last time, “If information arises about a particular company or about an economy, that information gets reflected in market prices without delay. You won't have time to read the news and get in. The market is very efficient at digesting news.”
That’s why I never start out the year by wildly speculating about what is going to happen. I get myself ready and secure with the approaches that have always worked throughout history.
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Now, I know it seems simple in theory: buy stocks that offer you a couple percent yield and you’ll have a built-in return even if the stock doesn’t move. But as far as predictions go, long-term dividend stocks are your best bet for safe and solid returns.
In fact, over the past two-and-a-half decades, dividends are responsible for almost 50% of the S&P returns. If you go back further in time, the results are even more impressive.
According to a report by the Guinness Atkinson Funds, dividends and dividend reinvestment made up a whopping 90% of returns from 1940 to 2011!
They go on to note that “if you had invested $100 at the end of 1940, this would have been worth approximately $174,000 at the end of 2011 if you had reinvested dividends, versus $12,000 if dividends were not included.”
Keep in mind that over the years, we've seen several major market crashes. If you were busy trying to use wacky indicators to determine how to juggle your stocks, you would have missed out on some serious gains. You would have also wasted a lot of time and resources.
Solid dividend stocks have weathered the storms and continued showering shareholders with cold, hard cash. They have outpaced the market as a whole, and with far less volatility. In other words, dividend stocks are not only safer — but they pay you to own them.
If you invest in them, the stock market over the long term is actually quite predictable...
My Crow's Nest newsletter has an entire portfolio filled with long-term dividend stocks that have been rock solid over the past five years — even during the recession. Today, we’re up over 33% on safe dividend stocks.
One opportunity I’ve uncovered is a virtually unknown company that belongs to an exclusive club of ultra-high income payers — a club that was, until recently, exclusively reserved for the very rich. Now you can buy it on the NYSE and reap an incredible 8% dividend.
So far it’s paid shareholders up to 80% of its market value in dividends... and it’s just getting warmed up.
If you really want to get ahead of the market and rely on tried-and-true methods instead of wacky market gimmicks, this stock is for you…
Jimmy is a managing editor for Outsider Club and the Investment Director of the personal finance advisory The Crow's Nest. You may also know him as the architect behind the wildly popular finance and investing website Wealth Wire, where he's brought readers the stories behind the mainstream financial news each and every day. For more on Jimmy, check out his editor's page.