Are the Lakers a Sure Thing?
For the 20-year period ending in 2007, the Los Angeles Lakers’ N.B.A. championship record did a surprisingly good job of reflecting the stock market. When the Lakers won, the market usually fell; the market rose when they lost. Between 1987 and 2007, this “indicator” was wrong only three times. As Ed Carson writes: “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.” Thankfully, Carson points out that the “Laker Indicator” is a perfect illustration of the dangers of assuming causality where only correlation exists: “But what if instead of the Lakers, we substituted put-call ratio or a bulls-vs.-bears indicator. A 20-year stellar track investing record like the Laker indicator would sound like a sure thing.” [%comments]