ETR: The most overlooked ratio in investing!
August 22, 2007
– Comments (3)
Curiously enough, only about 40% of active CAPS players have an accuracy rating of 50% or better; meaning they're doing worse than if they picked stocks blindfolded (and sadly, at the moment I'm one of 'em).
But (and here's the curious part) approximately 60% of active CAPS players are beating the market in terms of raw score, meaning that for one-fifth of us our winners are beating the market by more than our losers are losing to the market.
I suspect that this latter number is juiced up by the large number of players making "underperform" calls on obscure stocks- you can earn points this way even if your underperforms go up (as long as they go up less than the market); and you can make LOTS of points on a few real dogs. But I'll bet you there aren't many (any?) CAPS players making money this way in real life!
The numbers may also be juiced a little by the fact that small caps and foreign stocks have been outperforming the S&P since CAPS started.
Bottom line: it really is almost impossible to beat the market over the long run. Most of us investors really are inflicted with a poor ETR (Ego to Talent Ratio).
What will happen to CAPS scores when the market really does have it's next big fall, say a couple of consecutive 10% or more down years? It'll be ugly!
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