Be Careful Of False Theories

Airlines do much better when oil prices fall.  This is a common theory that makes sense on the surface.  After, airlines buy a ton of fuel to run those planes all over the country and world.  When oil prices are high, consumers don’t travel that much.  This all sounds logical.  The problem is you can’t buy or sell airline stocks based on these facts.  In 2009, oil is up over 66%.  If some of these theories were correct, the airline index would be down.  But, it’s not.  Airlines are up over 32% as a basket.

In fact, the chart below is comparing oil and the airlines and their respective correlation.  For most of 2009, there has been a pretty significant POSITIVE correlation, not negative.

Even gold and the dollar which have been moving completely opposite of each other this year don’t always do this.  Before you make an investment decision based on theories, go test them to make sure they hold up over time.


1 Response to “Be Careful Of False Theories”

  1. 1 osmand December 29, 2009 at 7:12 pm

    Hey Karl,

    I went to look for you podcast at BizRadio and I don’t see your podcast or your picture. What’s going on? We need an update.

    It appears that all talent is leaving BizRadio; first Vince Rowe now you.

    I hope you have good news for us. Thanks.


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