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. The Laker Indicator only steered investors wrong in three years during the entire span, and not once from 1995-2007.
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.
This strategy would have kept you in the market during the 1990s bull market, avoided the 2000-2002 bear and then got back in as the market uptrend resumed.
The Laker indicator did run into trouble in 2008. The Lakers lost, but the stock market crashed. However, the Lakers did make the Finals. And unlike the aging "Showtime" Lakers following their 1989 and 1991 Finals losses or the acrimonious 2004 squad, the '08 Lakers looked set for a championship run. So savvy investors stayed out of the market, in a case where the exception proves the rule "” or so Laker haters hoped.
But there's no explaining away 2009. The Lakers won the Finals "” a signal for investors to stay out "” but the market has soared even in the teeth of a long recession.
Sure, this is all ridiculous. 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.
Don't fall for that trap. Correlation does not always mean causation. Psychological "?secondary' gauges may appear to work for a time, then suddenly stop. And it's easy to look for excuses, a la the Lakers in 2008, for why your special indicator really still works.
Investors' primary indicators should always be the action of the major market averages and the leading stocks. (In much the same way, an assist-to-turnover ratio can be an interesting fact, but what really matters is whether a team scores more points than the other side).
If the broad market is rising in strong volume, that signals institutional investors are buying. But if there are a number of sell-offs in heavy turnover, the big and smart money probably is headed for the exit. And if top-notch stocks are struggling, that's another very bad sign.
RIP, Laker Indicator.
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The Laker indicator 1987-2009. Bolded years are when it did not work.
Nasdaq Laker performance Special details
Annual chg (Only Finals wins/losses noted)
1987 -5.2% Laker victory
1988 15.4 Laker victory
1989 19.2 Made finals (lost) End of run? Unclear, but Kareem retires
1990 -17.8
1991 1.7 Made finals (lost) End of run
1992 15.5
1993 14.7
1994 -3.2
1995 39.9
1996 22.7
1997 21.6
1998 39.6
1999 85.6
2000 -39.3 Laker victory
2001 -21.1 Laker victory
2002 -31.5 Laker victory
2003 50.0
2004 8.6 Made finals (lost) End of run. Shaq traded, Jackson leaves "¦
2005 1.4
2006 9.5
2007 9.8
2008 -40.5 Made finals (lost) Heralds start of Laker run?
2009 39.6 Laker victory
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