It seems that with the enormous amount of data gathered by the CAPS system, someone should be able to give a pretty good answer to the question of whether some people are better at picking stocks, or just luckier. I’m not a statistician, so I’m not sure how you’d approach this, but as a wild guess, I’d venture the following: Under either scenario (1. Some people are more skilled and can predictably outperform the market; or 2. It’s random, and those who outperform are just luckier) you would find a reasonably normal distribution of players’ performance, but under scenario #1 the curve would be flatter and under scenario #2 the curve would be taller. Also, under scenario #1, past performance would predict future performance, and under scenario #2, past performance would be unrelated to future performance.Additionally, to control for players’ risk tolerance, it would be useful to compare players’ performance during a bear market and their performance during a bull market.It’s hard to imagine that the good folks at TMF haven’t done some of this kind of analysis. Is any of this kind of information available?
Hi dillbeans,You might be interested in this Harvard study of CAPS:http://web.hks.harvard.edu/publications/workingpapers/citati...I'm not a statistition either, nor can I identify luck over skill, but if you click on PDF under Attachment at the above link you may be absorbed for quite a long time ;-)Richard
That is a good idea. Requires a bit of scripts to be implemented. Maybe it can be developed into a tool that a person can start & stop. Mark the bear market performance of their pics & then stop once there is a rebound. Would be nice to see that. Im no programmer but it would take some time for that to work, let alone be used. LOVE the idea though. Create groups, Bear Market Fools & Bull Market Fools.
Richard,Thanks for the link to the Harvard study. It was very interesting and also had some good citations to follow up on. The article itself focused more on the success of the CAPS system than on individual investors but some of the citations look at individual investors.One thing I found interesting was the assumption that an individual's superior performance was driven by superior information. I'm not sure how true that is--I suspect judgment and temperament may play a larger role, especially when dealing with real dollars instead of just predicted performance.I was heartened to see that CAPS performed well in a bear market as well as in a bull market. To me that suggests it's capturing something more than just volatility.Fool on!Dan (dillbeans)
Quite welcome Dan, glad you found it useful.One thing I found interesting was the assumption that an individual's superior performance was driven by superior information. I'm not sure how true that is--I suspect judgment and temperament may play a larger role, especially when dealing with real dollars instead of just predicted performance.I'd rather have good judgment and temperament than access to information if I had to choose. You can give an amateur the keys to a Ferrari F1 and a map of the course, but that doesn't equate to a successful race.Richard
Hi Richard,Very interesting. Thanks for sharing this link.Tamara WDP Cohort 2
I'm investing from a 401k rolled into an IRA with fidelity. No taxes. For the year I am up 30%, taking my December 2011 ending balance and dividing it by my December 2010 starting balance as of 12/29/2011. Trades cost about $8. I spend a couple hours a day looking on the internet at stocks and I use the Stock Advisor service for ideas. My investing philosophy? I don't think I have one. I bought SLV at $26, sold at $47. Bought at 33, sold at 36. Bought at 33, sold at 36. I usually trade 1000 shares of whatever at a time so I was making 3,000 to 20,000 each set of trades. I did the same with CDE, starting around $14 I think, and making 2 - 5 thousand a trade. I bought WPRT at $25, and have bought and sold it several times. I believe it has an excellent future and have been tradeing 2 - 4 thousand shares a trade, the last was from 26 buy to a 33 sell with 4,000 shares. I have been buying SQQQ also for the big drops, buy at 18-19 a share and sell at 20 - 22. I bought wfm and made about 8 percent, it doesn't have the volatility I am looking for, and I use stocks in the 10 - 40 dollar a share range mostly. I held seagate for a long time, finally sold it for a couple dollars a share more, just before it took off. I recently sold off some trash - logl and like that, for about 8 thousand in losses. I like to take a good stock thats down, make a few bucks, and sell it. With the roller coaster of the market, all it takes is a volatile stock and waiting a few days for the dip or rise. I am currently mostly in cash due to thin trading. I also sell covered calls just to make a few bucks. Currently: I want to buy 4000 wprt at 30 or below. I am buying calls on aapl, maybe $10,000. SLV is getting close to a buy for me at around 26, maybe 1000 shares since europe is still bouncing. I think I am lucky and intuitive, I don't think I am skillful.
The problem with the CAPS score system is thatit favours adding many picks over a small number of picks.Over a long period of time, the only measure for yourskill is your total return. The total return however isnot tracked anywhere.If you pick 100 stocks at a time on average rather than 10 and your total return in each case is 1,000% over ten years, your CAPS scorefor the 100 stock pick would be 10 times larger than theperson who had only held an average of 10 stocks at a time.This should be corrected and the CAPS competition would thenbe superb.- Manlobbi
Manlobbi,Thanks for posting! I would like to see more activity on this board.I agree that in a real portfolio what matters is your total return (in CAPS speak, that would be your "average pick score.") However, I think the problem you mention is dealt with to some degree in player rankings. A portfolio of 100 stocks gaining 1000% is much less likely to be due to luck than a portfolio of 10 stocks with the same gain. It is also less risky. And player rankings are based in part on the probability of achieving your accuracy, not just the accuracy itself. So I think it is reasonable to give the picker of 100 winning stocks a higher score than the picker of 10 winning stocks.Cheers,db
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