MoneyWatch

Super Bowl offers 3 lessons for investors

By Allan Roth

January 28, 2014 / 8:50 AM EST / MoneyWatch

The betting line in Super Bowl XLVIII gives the Denver Broncos a slight edge over the Seattle Seahawks. Looking at the betting line before the season began offers some key insights to investing. CBS Sports writer Will Brinson wrote about the Las Vegas odds of winning the Super Bowl as the season began on Sept. 3, 2013.

According to Bovada.lv, the four teams with the highest odds of winning the Super Bowl were:

Denver Broncos 6-1
San Francisco 49ers 6-1
Seattle Seahawks 17-2
New England Patriots 10-1

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These were indeed the very four teams that played for the conference championships and the right to play in the Super Bowl. Brinson told me “an all-chalk Final Four is extremely rare in the NFL.”

Here are three insights on all the NFL oddsmaking that you can apply to your investing.

1. Growth stocks pay the least. If Denver wins, the bettor gets back $6 for every $1 wagered. Brinson picked Carolina as his sleeper, which would have paid $66 for every $1 wagered. Carolina won its division but lost to the 49ers in the playoffs. The lesson? Apple, Google and Facebook are rapidly growing companies, and this is already priced into the market much the same way favorite teams are priced with lower payouts.

2. Predictions can be spun to show the illusion of skill. It seems extraordinary that all four of the highest rated teams made it to the championships, doesn't it? Dig a little deeper, however, and you will find that of the 32 teams, the experts only explained about 21 percent of the win-loss records. In fact, taking out the four highest-ranked teams reveals there was no predictive power at all. By focusing on the winners and leaving out the losers, investment gurus love to spin their predictions to create the illusion of skill, but that's all it is -- an illusion.

3. The odds favor the house. I did the math on all 32 teams, and the odds are set so the casinos win no matter who prevails. Investing is the same in that money managers take very little risk but get paid irrespective of outcomes. It's the investors who take all of the risk.

There are many other extrapolations that can be made now that the Broncos and Seahawks are heading to the big game. As a friend pointed out, the two teams came from the only two states that legalized marijuana. It might sound silly to infer any cause and effect, yet is it any sillier than relying on such stock market patterns as the Super Bowl Predictor or Stay Away in May patterns?

Though it's not nearly as much fun, when it comes to investing I "own every team" on the planet via a low-cost index fund. When investors flee the stock market, I buy. I work hard for my money, and I’m not about to pay Wall Street a penny more than I have to in order to be in the game.

So who will win Super Bowl XLVIII? That’s easy – there is no doubt that Peyton Manning will lead the Broncos to victory. Sure, my opinion might be emotionally based on the fact that I live in Colorado and am a long-time Broncos fan, but Will Brinson is also picking the Broncos.

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Allan Roth

Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.

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