I'm not much of a football fan, but I'm pretty sure the Super Bowl is tomorrow. Like the rest of the investment world, I want the Giants to win, and that's not because I know anything about them, or have any feelings about Tom Brady after he fathered two children with two different gorgeous women right around the same time. No, I care because if the Giants win, we all win (at least, there's an 80%chance of it). One of the many interesting statistics tied to the Super Bowl outcome is what's known as "the Super Bowl Gauge", which states that if a team from the original NFL wins the Super Bowl, the stock market will be up that year. Don't laugh, it's been 80% accurate, which is far better than the track record of most mutual fund managers ---- only 25% of them outperform the market each year, and they charge fees! Anyway, the Giants are an original NFL team, and the Patriots go back to the AFL, so we want the Giants to win. Even though Eli Manning isn't as cute, but at least he's married to the mother of his child.
Another interesting statistic tied to the Super Bowl is recliner sales. They skyrocket around this time of year! Besides buying huge TV's, American's run out in droves to buy recliners before the big game. In fact, the furniture business is generally pretty weak, but it turns out that recliners do about $3.5 billion in sales annually, and that's projected to grow by 21% over the next 5 years according to industry watchers, thanks to the exciting new electric-push-button action, which makes reclining smoooooth. A high end Lazy Boy will set you back about a $1,000, but that's nothing compared to the $4 - 16 thousand you might pay for a ticket to the Super Bowl itself, and that's before considering flights and hotels. That's a 74% increase over last year's ticket price! If only you could have bought a ticket at last year's price and held it to resell this year --- that's would have been a great return in a year where the S&P 500 closed pretty much flat. You would have been a super star of the investment world with a return like that.
But Super Bowl tickets don't give you the ability to buy ahead. There are some things you can buy ahead and just hold onto them, like pasta, but there's other stuff like milk that doesn't keep so well. So if the store is having a great deal on pasta today, you could buy a whole bunch and eat it throughout the year, but even if there was a great deal on milk, you would only want to buy what you could use before it went bad. But let's say you don't live in a mansion with enough warehouse space for all that pasta. How would you lock in today's price? What if the price of pasta rose 74% in six months and you ran out? This is how futures contracts work: You buy a contract on a certain commodity, like wheat or coffee now, and you accept delivery of that commodity at some specified date in the future. Usually, you pay a bit more for that commodity future than you would if you wanted the thing right now (spot price), because the seller is warehousing it for you and helping you hedge against future price uncertainty. This is called "Contango" (I must admit, I currently have a crush on that word and I'm trying to find new situations where I might be able to use it). So if there were futures on Super Bowl tickets, you could have bought one for say $2,850 a year ago, a 25% premium over last year's price (contango), and hedged against the 74% increase in this year's price.
You could have also played futures contracts on the SuperBowl. If you had bought a futures contract on the Giants when they weren't so impressive, you could have gotten in when the odds were 75 to 1, and if the Giants win tomorrow, you could be looking at a 75% windfall!
So a futures contract is kind of like an insurance policy, and that's what this column was supposed to be about before I got carried away with tangents about illegitimate children and recliners. So I guess it's about the Super Bowl instead, because it turns out everything is about the Super Bowl. So go out and spend last year's Super Bowl ticket price on a nice smoothly reclining Lazy Boy, and instead of spending money betting on the outcome of the Super Bowl, just pray for a Giants win because 92% of those who bet money on the Super Bowl lose, and the odds of a Giants win producing a nice gain for your investments are much better than the odds of your mutual fund manger picking any winners for you this year.
I probably won't be watching the game, except Madonna's half time show. What are the odds it'll be better than last year's Black Eyed Peas show? Any takers?
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