Here at "A Dash" we believe that equity investors can learn from sports markets. The major reason is that the cycle time is much shorter. Predictions are made and results are rendered very quickly.
The market cycle is much longer, but the lesson is there.
The NFL Market
Each week in the NFL there is a market for those making bets on NFL games. The point spread is set initially by a Vegas expert who puts up a "number" that is expected to balance the betting action. Since the bookmakers maintain a betting spread, they are guaranteed to profit if action on the two sides is balanced. If the market jumps on one side, the price moves.
There are several important market analogies.
- It is a deep and liquid market, with plenty of action on both sides;
- The sports punditry, including both free and paid services, engages in fundamental analysis, looking at the strengths and weaknesses of both teams and how they match up;
- The pundits also engage in the equivalent of technical analysis, looking at how the teams have done versus the point spread, at home, on various playing surfaces, etc.
Blowout Results Seem Obvious -- After the Fact
Last weekend's blowout results included two games that (now) seem obvious.
The Lions lost again. The line opened with the Saints as 6 1/2 point favorites and closed at 7. The final score was Saints 42, Lions 7. The hapless Lions are setting a record for inept play. How could anyone think they could compete. Or so it now seems. Going into this game, the Lions were 6-8 versus the spread.
The Patriots crushed the Cardinals, 47-7. You only had to lay eight points. How could anyone expect a warm-weather team to play in the snow at Foxboro? The Cardinals are crashing. After the fact, it seems obvious.
We repeat our warning that investing is not gambling. In an old article we explain carefully why investors can learn from gambling. We look to this "market" to get meaningful lessons.
Should we follow pundits who predicted these two blowouts? Or is it better to look to long-term records of success?