Markets: 1, Analysts: 0

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I love making bets. The stakes are never high – usually a beer, a sandwich, or, if it’s with one of my kids or my wife, making the winner breakfast in bed. The real payoff is the smug satisfaction of having been right.

Of course there are lots of things people bet about. If it’s “what’s the capital of Burundi” then you really should be braced for the other person actually knowing it’s Bujumbura. Why else would they agree to a bet? But the winner of, say, the NBA playoffs is unknowable. With the Warriors up two games to none, though, the odds are pretty much tilted in their favor (nearly nine-to-one over the Cavaliers).

A year ago I made a bet with three colleagues at The Wall Street Journal and chose a side before they could. It seemed like a milder equivalent of wagering on the Cavaliers to win but without adjusting the payoff – even odds. I had just received a list of the stocks in the S&P 500 with the highest percentage of buy and sell recommendations from analysts. I guessed that the list of sells would do better than the buys.

Based on what I write in my upcoming book, Heads I Win, Tails I Win, not only aren’t analysts very good at picking stocks but you can gain a slight over the market by going against them. I figured I had a slightly better than even chance of winning, putting a small amount of money where my mouth was.

I didn’t even look at the list before making the bet. After I did, though, I started to worry. On the “buy” list were Facebook, Google, and various microchip stocks. They actually did well. On the “sell” list were a bunch of energy stocks that did pretty badly since oil prices proceeded to keep falling for several more months. There were also a bunch of dull stocks, though, such as utilities and breakfast cereal makers. They were boring but beautiful.

The year has come and gone and, despite an awful showing by some energy producers, the sells did nearly two percentage points better on average than the “buys” on average. In fact, the “buy” list lagged the S&P 500 by almost four percentage points. Theory validated!

Burton Malkiel, who wrote a very nice blurb for my book, once quipped that blindfolded monkeys can do as well as stock pickers. One fascinating study shows they probably can do better. So, with all due respect to analysts (and I really mean it – I used to be one after all), you should never buy or sell a stock based on their recommendations.

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