Ric Discovers the Best Stock-Picking Strategy Ever!
By Ric Edelman
For months, I’ve been working with my research team to find the foolproof, surefire way of making money in the stock market. After extensively analyzing years of data and painstakingly reviewing the historical performance of the 500 stocks that comprise the S&P 500 Stock Index,** I’ve finally found the answer.
Thus, I present to you the Edelman Brand Spectrum method. This BS method is so simple and so easy, even a child could implement it (if children were allowed to own securities). All you have to do is invest in companies with gray logos.
It’s true. For the five-year period ending June 30, 2010,* an analysis of companies in the S&P 500 based on the dominant color in their logos found that companies with gray logos consistently outperformed the rest. The 10 companies in this category produced average returns of 43% over one year, 7% over three years and 12% over five years. Conversely, my BS method clearly shows that you should stay away from companies with yellow logos: The six companies in this category lost 8% per year, on average.
These findings are clearly counterintuitive. After all, you’d expect sunny yellow to outperform gloomy gray. And if you had wasted your time studying the companies’ 10-K filings or analyst reports issued by Wall Street investment banks, you’d have missed out on this amazing discovery entirely!
My BS method offers other insights: The three best-performing colors contain a total of just 20 companies, while the 322 companies that have blue or red logos produced average annual returns of just 1% over the past five years. This shows that choosing popular colors does not guarantee investment success. I know what you’re thinking. Does sky blue perform better than navy? Is fire engine red better than hot pink? In the months ahead, we’ll be expanding our research to find even more BS. Who knows? We might even discover that mixing white and black will enable you to create your own shade of gray. Stay tuned!
Footnote: I hope you’ve figured out that the Edelman Brand Spectrum Method is a parody. I was inspired to create it by listening to recent talk of the so-called Hindenburg Omen, an absurd predictor that got major headlines this summer even though it’s little better than the BS method you just read. The Hindenburg Omen, created by a mathematician named Jim Miekka, is based on his examination of historical stock market performance. By engaging in such “data mining,” he determined that the stock market crashes soon after stock prices reflect certain patterns. His predictor is based on the number of stocks that simultaneously hit 52-week highs and lows while comparing those results to something called the McClellan Oscillator (which tracks the rate of money entering and leaving the market).
The media has noted that the Hindenburg Omen has predicted every market crash since 1987. But most have failed to report that the Omen also falsely predicted many crashes that never came to pass. In fact, according to Miekka himself, the Omen has been wrong three out of four times since 1985 — a dismal 25% accuracy record. By the way, the Hindenburg Omen got its name from a friend of Miekka’s. He says he wanted to call it Titanic but that name was already taken by some other data miner. Seriously. So before you decide to buy or sell a security because of some predictor whose roots lie in data mining, remember, as my BS method shows you, anyone can play that game.
**An Index is a portfolio of specific securities (common examples are the S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance does not guarantee future results.