Posted on 12/16/2009 12:44:13 PM PST by Slyscribe
No, but for a long time they seemed to. The best kept secret of the past 20 years has been this: When the Los Angeles Lakers won the NBA championship, the market would almost always fall that year. When the Lakers lost, the market would usually rise. An investor who put down $1,000 into the Nasdaq at the start of 1987 and stayed fully invested through 2007 would have ended up with $7,604. But an investor who bought the Nasdaq in years the Lakers lost and stayed in cash when the Lakers won would have finished with $21,189.
(Excerpt) Read more at blogs.investors.com ...
I can predict better than the Lakers.
As soon as Obama/Dems announce that they are doubling personal income tax rates (which they will), the stock market will get destroyed.
No, but for a long time they seemed to.
No problem. We'll just trim the chart and graft on actual stock market readings to hide the decline.
Good article - it is incredible how many people fall prey to magical thinking.
You can always find some metric that tracks any other metric for all T < T_now. You can find tens of thousands even for very complex trends, some very creative. Most such trackings are weaker even than normal statistical correlation - the vast majority cease to track for T>T_now (by virtue of how these metrics are artificially constructed - you can fit anything with enough adjustable parameters or a wide enough array of independent basis sets, and there are indeed essentially an infinite number of sets of data from which to draw “correlations” between other sets).
The best way to think about it is: what is the probability of NO other metric tracking the behavior of a given metric? What is the probability of only one, only two, only three... With a large enough state-space (as our existence so enjoys), “magic” will always be perceived.
Perhaps one could fit the performance of the DJIA to the average height of NBA players in centimeters squared, plus the median household income in Los Angeles, multiplied by the square root of the gross for the prior year’s Oscar winner for best picture. Add some other garbage to get the fit better, and there you have it. Or perhaps all one must do is find a junior soccer league which trends the same way.
As the article states, the danger lurks where this process has been applied to data in such a way that the results resemble (”Cargo Cult”) science. A trend is extrapolated, a model is built from assumed-independent data, and then a posteriori justifications are found that appear to give independent validation of the process. This is how finance witch-doctors are born, and they all eventually burn.
That doesn’t make sense. Lakers lost in 2008 and the market tanked. Lakers won this year and the market has soared.
I’ve heard of this “urban legend” before. Living in L.A., I’m a minority when I say I’m sick and tired of the Lakers. Being an ex-Canuck, I head to L.A. KINGS games when I have the time. But hey, bless those investors who made money using this procedure. The craziest one I know of is an investment banker I know who’s firm is in Century City heads to a Chinese astrologist in the SFV, and makes money.
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