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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Four Wall Street Superstitions That Just Won't Die

Frustrated by your stock portfolio's lackluster performance? Ever wish you could find that magic eight ball to predict the next big thing? Well, today just might be your lucky day. Odd things happen on Wall Street (and we're not talking about the jittery trading taking place on the floor).

That's right. This is about those Wall Street trader superstitions that refuse to die.

A little digging reveals that some of these superstitions are just that -- silly, unfounded rumors. However, there are others with surprising historical success rates some traders swear by. Still not convinced? Then check out these four superstitions that just won't to go away.

The October Effect

October = bad luck (for the markets). It started in 1917 with the communist overthrow of the free market Russian economy. The month was filled with forced emigrations and firing squads for the vanquished capitalists. Twelve years later, disaster struck again when the greatest stock market crash of 20th century occurred.

More recently, October has been the setting of 1987's Black Monday, as well as the 1997 Asian currency crisis. Eleven years later, portfolios endured another painful October drop kick into the 2008 credit crunch.

So are there always more tricks than treats?

Taken at face value, this superstition is quite the rollercoaster ride, but when investors finally swap panicked excitement for cool logic, they'll find this superstition is worth ignoring.

A little research reveals that the last time October turned in a devastatingly poor performance was in 1995 -- fifteen years ago. Even better, the same statistics show that over the past 30 years, August was actually the worst month for investing performance while October was the best.

So what can investors expect this time around? According to the USA Today/IHS Global Insight Economic Outlook Index (which predicts future real GDP growth using 11 leading economic indicators), investors will see a slight growth slowdown during October and November, with a projected increase expected in December. 

The Super Bowl Theory

Super Bowl Watching Party Supplies: Big screen TV, comfortable couch, beer, chips and... your investment portfolio?

No, we're not kidding. One of the more convincing superstitions is the Super Bowl Indicator. The theory claims the stock market will rise if a National Football Conference team wins the game. Likewise, if an American Football Conference team wins, the market will drop.

Does it work?

Most of the time, yes! The indicator was correct 25 times in 37 years from 1967 through 2003, an almost 68% success rate. Then it misfired several years in a row when AFC teams squashed their NFC rivals during the 2004-2007 economic growth spurt. The superstition finally fell back in line in 2008 when the New York Giants (an NFC team) won a hard-fought battle over the New England Patriots, and ushered in the decade's last boom year.  

2010 brought new hope to investors when the NFC New Orleans Saints trounced the Colts. And while this year's market can be politely called jumpy, the overall gains are still trending bullish.

Bookies are already placing odds on the 2011 Super Bowl winner. The superstitious bulls out there should consider throwing their support behind NFC teams like the Saints and the Green Bay Packers -- just in case. Go Cheeseheads!

See-Saw Hemlines
Fashion's a lot more important in the trading world than most people realize, especially where hemlines are concerned. Why? This superstition claims that when hemlines rise, so do the markets. Likewise, when hemlines fall, the markets fall.

Can something as off-topic as skirt lengths really predict the market?

There definitely seems to be an uncanny correlation. In 1925, skirt lengths revealed the Roaring 20s short flapper funk while the 1930s hemlines displayed a longer, Depression Era modesty. Skirt hemlines began climbing again only when knee-high poodle skirts welcomed in the economic boom of the 1950s. Unfortunately, the 1970s stagflation dropped hemlines back down to a more conservative bent.

Almost ten years and a Material Girl later, skirts finally hoisted themselves back up into the stratosphere, just in time for the 1987 crash.

After looking at this chart from Ken Fisher's The Wall Street Waltz: 90 Visual Perspectives, tracking hemlines from 1897-1986, you might decide that this is one superstition you don't want to forget.
 

Investors are excused if 2010 hemline fashions seemed a bit more confusing than usual. This past year, skirt lengths ranged everywhere from sky-high minis to long, elegant sheaths. Apparently, even designers aren't sure what to make of the current economy -- 2011 hemlines appear just as uncertain.  Perhaps investors should put this theory on the backburner until 2012.

The Curse of the Tallest Skyscraper

The taller the buildings, the steeper the market drop, according to this superstition. And a closer look reveals some interesting support for it:

  • Completed in the early 1930s, the Chrysler and Empire State Buildings heralded the beginning of the Great Depression;
  • The Sears Tower, completed in 1974, coincided with a two year low in the Dow;
  • Malaysia's Petronas Towers were unveiled in 1997, and shortly afterward, the country's stock market suffered a precipitous drop; and,
  • In 2008, Dubai seized the bragging rights for having the world's tallest building, the Burj Khalifa. A massive debt default and stock market crash quickly followed.

Any solid ground supporting this superstition?

Building projects typically begin during a market expansion, only to finish during its retraction. And when a country decides to take on the world record, you can assume its expansion is nearing its peak.

Want to place a bet on the next market to crumble? China's Shanghai Tower is scheduled for completion in 2014 and South Korea's Incheon Towers project will finish in 2015.

To read more about the factors driving China's ascent, check out 10 Facts About China You Won't Believe (But You Should).