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reddingrunner (95.78)

ETR: The most overlooked ratio in investing!

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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!  

3 Comments – Post Your Own

#1) On August 22, 2007 at 2:11 PM, FourthAxis (< 20) wrote:

Accuracy is NOT important.  CAPs ignores position sizing, but does take into account Score per pick.  As you pointed out is is possible to have a losing accuracy and a winning score.  CAPS even has section of players with "high accuracy, low score" and "low accuracy, high score."

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#2) On August 22, 2007 at 4:33 PM, reddingrunner (95.78) wrote:

I see your point, FA, but I do look at accuracy when evaluating how much confidence I should put in a player's picks.  If someone is wrong 2/3 of the time but hits the occasional grand slam I'm still going to be nervous about cherry-picking their latest "can't miss" recommendation.

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#3) On August 24, 2007 at 2:31 PM, ikkyu2 (99.15) wrote:

>meaning they're doing worse than if they picked stocks blindfolded

 

No, actually.  The S+P does not track the performance of the median stock.  There is no reason to believe that there is a 50% chance of getting it right just by flipping a coin.

I don't actually know what you should expect your accuracy to be if you selected stocks randomly and then flipped a coin to determine your pick, but again I would say there's no reason to expect that it should be 50%.

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