The New England Patriots Are Losers
By Tom Dyson
January 16, 2008
New England is the best team in the National Football League. They were undefeated this season. They may be the best football team of all time.
The Jets are the second worst team in the NFL. They won four games and lost 12. Two of their victories were against Miami, the worst team in the league.
On December 16, the Jets played New England. New England won the game 20-10. But if you'd bet on the Jets, you would have won the bet.
One week later, Miami played against New England. Miami is the worst team in the National Football League. They won one game this season... and lost 15. New England won the game 21-0. But if you'd bet on Miami, you would have won the bet.
The Giants are an average team this year. They won 10 games and lost six in the regular season. On December 29, the Giants played New England. New England won the game 38-35. If you'd bet on the Giants, you would have won that bet, too.
How is it possible that New England won all three games, yet a gambler would have lost his money three times by betting on them?
Here's the explanation:
Leading up to the end of the season, everyone expected New England to have a perfect record. They were the strongest team in the league and were aiming for an undefeated season. So gamblers bet New England would thrash their opponents.
With the public betting so heavily on New England, the bookies had to adjust their lines in favor of the underdogs to balance their books. They gave New England a 20-point handicap against the Jets... a 22-point handicap against Miami... and a 13-point handicap against the Giants.
These handicaps were among the largest I've ever seen in the NFL football markets. Even though they won the games, New England couldn't match these high expectations.
This principle of expectations is the single-most important concept to understand if you're going to profit in the investment markets.
Right now, everyone expects the United States residential property market to perform badly.
The public sees entire tracts of brand new homes unable to sell. They wonder how they'll ever be able to sell their old house when new ones can't sell at the same price. They see realtors losing their jobs. They see predictions of recession, unemployment, and bankruptcy on television.
The thing is, the stock market bookmakers have already adjusted their handicaps to reflect these expectations...
The iShares Dow Jones US Home Construction ETF is a fund of the companies that build homes and the companies that provide construction materials to the homebuilding industry. Its symbol is ITB.
ITB closed its first day of trading at $50.10 on May 5, 2006. Today, it's at $14.34. That's a 71% decline in less than two years.
So the question is, will the future prove to be better or worse than the public expects right now?
I believe the public has overreacted... just like they did with the New England Patriots in the last three weeks of the season. The Feds are injecting liquidity into the system, the politicians are making laws to bail out bankrupt borrowers, and as I explained in my last column, the price of homebuilders now reflects the worst-case scenario in the home-construction industry.
You might think about making a bet on the underdog here. The underdog may still have a terrible season, but I expect you'll profit anyway...
Good investing,
Tom
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