Is Your Favorite Sports Team Hurting Your Stock Portfolio? | Marginalia Episode 4

Some professional athletes have unusual superstitions. For example, Wade Boggs ate chicken before
every baseball game. Serena Williams bounces the tennis ball five
times before her first serve, and twice before her second serve. NASCAR drivers refuse to keep a $50 bill in their wallet when they’re behind the wheel. And the New York Yankees sometimes wore gold
lamé thongs underneath their uniforms when trying to break out of a slump. While the connection between thongs and home runs
is up for debate, here’s a surprising, true connection Multiple studies have looked at cities’
football, baseball, basketball, hockey, and soccer teams, and found that a team’s performance
can affect its city’s local stock prices. Losses can lead to a decrease in the return
of local stocks the next day likely because the loss makes investors more pessimistic. But positive events, like beating a rival
in a playoff game, can boost returns. Studies outside the United States have focused
on football no, not that kind of football because World Cup elimination games may command the
attention of the entire country. A World Cup loss in certain soccer-obsessed
countries in Europe and South America had a statistically significant negative effect
on the losing country’s stock market. Overall, studies show that the outcome of
sports events seem to have an effect on the stocks in that team’s region, but their
effect on the larger market is debatable. This may be because individual investors have
a local bias they may prefer to invest in stocks of companies that are geographically
close to them. So when the local team loses, investors may
be more bearish overall but the effect is only observable in the publicly traded stocks
whose companies are headquartered near the hometown team. So what does this mean for investors? Should you try to time the market based on
a team’s starting lineup? Probably not. While it’s okay to keep your hometown favorites,
consider diversifying your portfolio by including more than just familiar companies headquartered
in your hometown. This way, if an event hurts a company or companies
in your local area, it won’t have a disproportionate effect on your overall portfolio. For example, if you were a San Francisco Giants
fan whose portfolio solely consisted of Bay Area stocks, you might’ve been hurt by the
dot-com bubble more than the average investor. Many investors build geographically diverse
portfolios by making sure they own stock in domestic and international companies, because
global markets don’t always move in the same direction. In general, exposure to different companies
across the globe and different types of sectors can potentially protect your portfolio if
there’s instability in one particular region or sector. So when it comes to your portfolio, make sure
it’s not overexposed.