I’ve seen plenty of business newspapers and business sections run stock-picking contests where they ask professional analysts or money managers to pick stocks and then gauge the performance against average every-day people or random selections.
But I’m beginning to wonder whether these stories provide any sort of service to readers of business and financial news.
The Wall Street Journal has run one of the longest contests in this genre. In 1988, the newspaper began a regular feature where investment professionals picked stocks and compared their performance against stocks picked by throwing darts. The feature has been wildly successful and copied, and academics have studied its significance.
In the WSJ contest, the experts outperform the darts by a wide margin, but they outperform the broader market by a statistically insignificant spread, noted researchers Allen Atkins and James Sundali in Applied Economics Letters. Another study of the WSJ picks by University of Massachusetts business professor Bing Liang showed that the picks by the professional investors have been “indistinguishable� from the dartboard picks 90 percent of the time.
Then there’s this: A dartboard selection of stocks has outperformed selections by WSJ readers, according to this Motley Fool column. The dartboard picks rose 6.3 percent, while the others rose 4.3 percent in the last six months of 2005.
The Motley Fool writer adds: “The bottom line is that these contests are fun — and not much else. It might be interesting, though, to revisit these contests after a longer period, such as five or 10 years. But even that’s not fair, since any human with brains would likely have sold off most poor performers over long periods, instead of just holding on through the end of a contest. In a long-term contest, I suspect that human brains would prevail over darts — perhaps even if the human brains just invested in a simple index fund.”
Seriously, do we as the business journalism community actually think that we have readers who pick stocks based on these selections? I think they’re often interesting reading, but that’s about it. Maybe it’s time to do away with stock picking contests.
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You don't think it's noteworthy that darts do as well as professionals?
"In a long-term contest, I suspect that human brains would prevail over darts"
Exactly. Most people would expect that even in the short or medium term. But alas, it doesn't.