Wednesday, January 19, 2011

Random Stock Selection Again Beats Index; 99.9% of High Priced Managers

There may be a problem or two with the sample size, replication, error bars, pretty much the whole statistical schmear, but if I put that in the headline would you have read this far?
From Joe Meth (Stock Chartist):
For the past couple of years, I have played an imaginary game called "Perpetual Options". The game involves selecting a hypothetical portfolio of 15 low priced stocks at random, pretending to invest $2000 in each and seeing how the portfolio performed over the next 12 months.

I started the game at the depths of the Financial Crisis in February 2009 because a friend, who is extremely conservative, rattled off all the reasons why individual investors shouldn't be in the stock market. While the market, as measured by the S&P 500, increased by 28% (February 1, 2009 to December 31, 2009), that first grab bag of 15 low-priced stocks increased by nearly 100%. The original $3000 invested on February 1, 2009 would have grown to $5954 in 11 months....MORE