This is a tip I should have done around January 1st, but there were other subjects I wanted to cover first. There has been an amazing phenomenon that’s happened here in Southern California the last 50 years. The Pasadena Rose Parade has not been rained on once during that period. In fact this year it rained 3 days before, several days after, and a little in the afternoon after the parade. But the morning of January 1st it was bright and sunny.
What conclusions can we draw from this? Is it global warming? Is it a fundamental change in weather in the area? Or is it as some have suggested (obviously with tongue firmly in cheek) the power of the parade gods over the weather gods?
Obviously the answer is, it’s an interesting statistical coincidence. Consider that though it’s not rained on the parade in the last 50 years, Early last century it rained on the parade one year out of 3. Well certainly that’s interesting, but what’s this got to do with investing? The answer is, that many people use such coincidences to make decisions about what to do with their hard earned money. If the market is up in January, it’s going to be an up year. Six times in a row when XYZ Corp. hit $15 a share, it went back to $20. So that will sure happen again won’t it? We laugh at the power of the parade gods, yet we plunk down our savings on equally flimsy coincidences.
But how do we tell if it’s a coincidence, or if there is something real going on? Is it a coincidence that Berkshire Hathaway stock is up 2000 fold in 30 years? The answer is of course not, if there is a logical reason for what’s going on. Warren Buffet’s management is a logical reason for the increase in Berkshire Hathaway’s stock. The parade gods are not a logic reason for good weather. Keep that in mind the next time you plunk your hard earned money on any investment.