Received: by alpheratz.cpm.aca.mmu.ac.uk id BAA21581 (8.6.9/5.3[ref email@example.com] for cpm.aca.mmu.ac.uk from firstname.lastname@example.org); Tue, 19 Mar 2002 01:07:46 GMT X-Originating-IP: [126.96.36.199] From: "Grant Callaghan" <email@example.com> To: firstname.lastname@example.org Subject: RE: Predicting the Stock Market Is Child's Play Date: Mon, 18 Mar 2002 17:01:52 -0800 Content-Type: text/plain; format=flowed Message-ID: <LAW2-F61wiDgpfVZyuY000192ee@hotmail.com> X-OriginalArrivalTime: 19 Mar 2002 01:01:53.0015 (UTC) FILETIME=[A8546070:01C1CEE1] Sender: email@example.com Precedence: bulk Reply-To: firstname.lastname@example.org
>Subject: RE: Predicting the Stock Market Is Child's Play
>Date: Mon, 18 Mar 2002 16:36:24 -0000
> <The young girl's choices were described as 'random' but, I suspect
> > a liberty, especially when I see one of her choices is Cadbury
> > Schweppes....>
> Yes, I think 'arbitrary' would be a more accurate term than 'random'
>for her decisions.
> Wiseman's an active skeptic, and a bit of a media savvy one at that.
> Still, I think pointing out that stock market analysts are as much
>con artists as astrologers can only be a good thing.
The idea that stock market analysts are not much better than throwing darts
at the Wall Street Journal has been around for a while:
Soothsayers see sagging stocks
Can anybody predict the stock market? Apparently some people can. For
example, we recall a Woody Allen character explaining proudly:
I'm a stockbroker. [Pause]. I invest other people's money [longer pause]
until it's gone.
There are other professionals who claim they can invest your money and earn
big bucks rather than losing your nest egg. That would be handy in a time
when Wall Street has dropped 10 percent from its high, wouldn't it?
Now there's evidence that some stock analysts -- in some years -- can select
stocks better than morons (technically, journalists) who pick stocks by
throwing darts at a newspaper stock table. (Believe it or not, that's a
popular activity in places where they ought to know better.)
If you're too young to remember the Summer of Love, you're too young to
remember Nobel Prize-winning economist Paul Samuelson's 1967 declaration to
a Senate Committee: "A typical mutual fund is providing nothing for the
mutual fund owner that they could not get by throwing a dart at a
According to Allen Atkins, a finance professor at the University of
Arizona, that challenge spurred a mini-industry in dartboard analysis.
Shortly thereafter, Forbes Magazine ran a dartboard investment portfolio.
And since 1988, the Wall Street Journal has run a monthly column pitting
investment pros against -- darts.
Logically enough, they call it the Investment Dartboard.
The darts haven't won the race, but they have done respectably, Atkins says.
In fact, in 79 contests between human stock analysts and human dart
throwers, stock analysts have won 45 times, and darts 34 times.
To evaluate the dart hypothesis, Atkins and a colleague (see "Expertise in
Investment Analysis... " in the bibliography) compared the results from the
Investment Dartboard to the Dow Jones average. One month after the
professional or the dart chose a stock, the experts had beaten the Dow by
1.41 percent. Darts, unfortunately for Samuelson, were 1.75 percent below
Not so great for the dart-throwers. But before you actually put away your
darts and go out to pay for investment advice, consider:
Darts are cheap.
Darts are fun.
Darts don't make cold calls during dinner.
On a slightly more serious note, Atkins notes that the results might have
been skewed by the fact that after the Wall Street Journal published the
Investment Dartboard, investors may have bought the expert-selected stocks,
artificially inflating their prices.
The study was also a readable way to test a popular economic theory called
the "efficient market hypothesis." What that means, to those who don't speak
economeze, Atkins explains, is that "there are so many people investing in
the stock market that all information becomes impounded in the stock price."
In other words, supply and demand produce a realistic price, and the price
will not change until underlying economic conditions affect the supply
and/or the demand.
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