There's an old investing adage that says, "As January goes, so goes the year." And this year, the Dow enjoyed a gain of 4.4% in its first month -- auguring a propitious 50% gain in the Dow (had it kept up that performance). Good news, right?
Well, it would have been, except for one thing: common sense.
Had the Dow continued rising at the pace set in January, we would end 2012 with the Dow at 18,000. And with the U.S. in the middle of a stuttering recovery, and much of Europe grinding back toward recession, Dow 18,000 was never very likely.
That's the problem with trusting in market "truisms" like the January theory. When they defy common sense, expecting them to perform as billed is pretty nonsensical. Anyone who bet on Dow 18,000 -- or even the Dow 15,000 implied by the market's course through April -- was bound to be disappointed.
But the January theory isn't the only one suffering from leaky logic. Several other "sure thing" theories, common in investing circles, may not hold water either.
"Sure Thing" Investing Theories Put to the Test
7 'Sure Thing' Stock Market Predictors Put to the Test
Gallery by Rich Smith, The Motley Fool
Right now, it looks like "sell in May" was pretty sound advice. But in fact, stock markets experienced an even sharper, faster, deeper dive in early April than they did in early May. The difference was that in April, prices rebounded by month's end, and then fell off the cliff a second time in May. But really, 99% of the market's gains were already "in the bank" by mid-March. There was nothing black-magical about May at all.
The so-called "Superbowl" theory is a popular one in amateur stock picking. According to stock market lore, a year in which a team from the old National Football Conference beats a team from the American Football Conference will be a good year for the stock market. This should have been good news for 2012's stock market, since the NFC Giants beat the AFC Pats. Obviously, the jury's still out on this one, but so far, the market hasn't given investors a touchdown yet.
Sports fans of a different stripe may prefer to peruse the SI theory. When an American graces the cover of SI's most popular issue, it supposedly means good news for the S&P. This year, Kate Upton was the chosen beauty, and she's sure enough American (born in Michigan). But let's not count on her to charm markets upward just yet.
Not all investors waited for the January results to come in, the whistle to blow on the Giants' victory, or the May score on the Dow, before deciding that 2012 was going to be a great year. This is "the year of the dragon" in China, and according to The Economist, "dragon" years have historically been the second-best performers of the 12 Chinese zodiac signs, producing about 11% nominal returns. So far, though, we had little to show for it -- at least until the big rally over the past couple of days.
Speaking of rash decisions, we alluded to this indicator in a story on the startling rise in cases of diaper rash spreading across the country in 2011, alongside increased sales of Desitin and dropping sales of disposable diapers. In theory, such signs of consumer belt-tightening should portend a stinky performance by the stock market. So far, this is looking like a pretty good guideline.
Now we come to what has actually turned out to be perhaps the best oddball indicator of all. Nearly a century ago, economist George Taylor touted the his theory connecting the length of women's skirt styles to America's economic fortunes. (The higher the hemline, the higher the stock market.)
Believe it or not, in February, Business Insider conducted an exhaustive report on the status of New York hemlines -- no, seriously! -- concluding that "overall, average hemlines in 2012 registered a 44.38 on the index, up from 35.04 for the Fall/Winter 2011 collections."
One week later, USA TODAY argued the opposite -- that hemlines at the New York Fashion Week were really down -- concluding we were in for "a mild slowdown." And just to make things interesting, self-proclaimed "trend forecast analyst" Harilein Sabarwal argued in April that what's really in fashion this year are asymmetrical hemlines that start higher, and slant downward.
Hey -- maybe this is the most accurate indicator of all!