Thursday, 3 January 2013

How accurate are stock pickers?

Ran into this article from the CXO Advisory group today and thought it was interesting.  I'm sure everyone who reads about the market comes across various newsletters are experts that proclaim they know what the market will do in the future (hey I do this too but I don't get paid for it) and wondered how accurate it is.  CXO looks at their predictions and determines how accurate their advice is.  Turns around, most predictions are about a coin flip at ~45-50% (note that this is different than predicting what one company out of hundreds will do well, it merely says if the stock they chose did well).  I'm interested to see if they have a figure for what % of companies do well.

This info is not intended for you to only follow the accurate callers as past performance is not indicative of future results.

See full link

Grading Methodology:

The essential grading methodology is to compare forecasts for the U.S. stock market (whether quantified or qualitative) to S&P 500 index returns over the future interval(s) most relevant to the forecast horizon. However, many forecasts contain ambiguities about degree and timing, equivocations and/or conditions. In general, we:
  • Exclude forecasts that are too vague to grade and forecasts that include conditions requiring consideration of data other than stock market returns.
  • Match the frequency of a guru’s commentaries (such as weekly or monthly) to the forecast horizon, unless the forecast specifies some other timing.
  • Detrend forecasts by considering the long-run empirical behavior of the S&P 500 Index, which indicates that future returns over the next week, month, three months, six months and year are “normally” about 0.1%, 0.6%, 2%, 4% and 8%, respectively. For example, if a guru says investors should be bullish on U.S. stocks over the next six months, and the S&P 500 Index is up by only 1% over that interval, we would judge the call incorrect.
  • Grade complex forecasts with elements proving both correct and incorrect as both right and wrong (not half right and half wrong).
Weaknesses in the methodology include:
  • Some forecasts may be more important than others, but all are comparably weighted. In other words, measuring forecast accuracy is unlike measuring portfolio returns.
  • Consecutive forecasts by a given guru often are not independent, in that the forecast publishing interval is shorter than the forecast horizon (suggesting that the guru repetitively uses similar information to generate forecasts). This serial correlation of forecasts effectively reduces sample size.
  • In a few cases, for gurus with small samples, we include forecasts not explicitly tied to future stock market returns. There are not enough of these exceptions to affect aggregate findings.
  • Grading vague forecasts requires judgment. Random judgment errors tend to cancel over time, but judgment biases could affect findings. Detailed grades are available via links below to individual guru records. Within those records are further links to source commentaries and articles (some links are defunct). Readers can therefore inspect forecast grades and (in many cases) forecast selection/context.
  • S&P 500 Index return measurements for grading commence at the close on forecast publication dates, resulting in some looseness in grading because forecast publication may be before the open or after the close. Very few forecast grades are sensitive to a one-day return, and we try to take looseness into account in grading any forecasts that focus on the very short term.

David Nassar4468.2%Doug Kass17847.6%
Jack Schannep6166.7%Jeremy Grantham3747.5%
Ken Fisher11565.0%Don Hays8547.1%
David Dreman4463.6%James Stewart11547.0%
James Oberweis3562.9%Marc Faber15447.0%
Louis Navellier14959.9%Richard Band3146.9%
Jason Kelly12559.4%Jim Cramer6246.8%
Dan Sullivan11559.1%Gary D. Halbert9346.4%
John Buckingham1758.8%Dennis Slothower14445.3%
Cabot Market Letter4858.8%Jim Jubak14144.2%
Steve Sjuggerud4958.5%Bill Cara19844.2%
Richard Moroney5556.4%Tim Wood18243.8%
Carl Swenlin12555.4%Martin Goldberg10943.1%
Jon Markman3655.3%Price Headley34842.0%
Aden Sisters3954.8%Gary Savage11941.9%
Bob Doll16154.7%Linda Schurman5741.4%
Paul Tracy5253.8%Donald Rowe6940.6%
Bob Brinker4453.3%Igor Greenwald3740.5%
Mark Arbeter23053.2%Bob Hoye5440.4%
Gary Kaltbaum14453.1%John Mauldin21139.9%
Robert Drach1952.6%Nadeem Walayat6639.7%
Don Luskin20152.0%Jim Puplava4339.5%
Laszlo Birinyi2751.9%Comstock Partners20339.3%
Tobin Smith28150.2%Gary Shilling4037.5%
James Dines3950.0%Bill Fleckenstein14837.3%
Ben Zacks3250.0%Richard Russell16636.9%
Richard Rhodes4248.8%Mike Paulenoff1235.7%
Bernie Schaeffer8148.8%Abby Joseph Cohen5635.1%
Stephen Leeb2748.3%Peter Eliades2934.5%
S&P Outlook14548.3%Curt Hesler9233.0%
Carl Futia9648.1%Steven Jon Kaplan9931.4%
Clif Droke9748.1%Robert McHugh12828.9%
Charles Biderman4847.9%Steve Saville3523.7%
Trading Wire6947.8%Robert Prechter2321.7%

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