Proof that any monkey can beat the SPY over the long haul, most of the time, by picking individual stocks, any stocks, totally at random.

Spank my Monkey and stop sending your money to mutual and index funds to die.

 

Those who suggest it's somehow statistically impossible or highly improbable to beat the SPY over a "long" period of time often change their mind after about a 3 minute conversation with me.

For instance, to suggest one cannot better the SPY recently is to claim an individual investor to be completely unable to avoid the financial sector over just about any several month time period in the last year, muchless the last 6 months or 12 months. It doesn't take a genius to avoid catastrophe, at least partially, which almost automatically gives you a significant advantage over the SPY as a whole. If you had lightened up on your financial holdings and perhaps shifted the funds to any other sector, tech, energy, utilities, arguably even transports, or bonds, you would have already saved yourself from significant loss compared to the decline the broader indexes have sustained.

Often it's just the ability to avoid the catastrophes that give you better than 'average' market returns. You don't have to be a miracle stock picker or spend 3 hours a day researching.

Another example, say a year ago I asked you to pick the top 10 firms in the DJIA that had the best chance to meet or beat earnings estimates and pick the 10 you would most avoid. Every 6 months, reallocate your funds out of a sector you think will do poorly based on economic and fundamental rationale [say financials] and put more in to a different sector or evenly across the board. I think most people with basic knowledge of the markets/economics would realize GM was in bad shape. If you had managed to avoid that firm, muchless short it, that alone would probably give you an entire 1% over the year if not 2-5%.

Or another way is to range the index as a whole. Most individual investors knew that around DJIA 14,000 the probabillity of going lower vs higher was at best 2:1, for me it was about 6:1. Take some money off the table and put it in a liquid account earning 3.5-7% risk free, dollar cost average in later. The market might have continued to creep up, but your 3.5-7% risk free makes up for that. In addition by going back in even at 12,000, you don't have to be perfect, you just saved a 16% loss on many of your holdings.

There is nothing wrong with index funds and you won't hear me say otherwise. However, that does not mean it's overly difficult or worse 'impossible' to consistently do better than an index fund. Now you mutual fund guys, that's a different story for the most part.

 

Your Initial $9948.62 investment would now be worth $203791.77 ex-dividends

Wow. CELG.

 

that ain't no random stock picker, sorry cthree

same "random" assortment manages to show up, and always one with a huge 5 figure winning results showing up. clicking it 20 times I don't think I saw one stock with a 4 digit loss. You telling me that low a % of stocks have had a big negative result? for every big winner there are ten big losers

bogus

For the average investor, index funds are a smart and wise decision

for the extremely few that have the time, money, and patience to play the stock game, there is money to be made. but that is not a high percentage of people, not even double digits.

many people in this forum basically treat buying/selling stocks as a career. that is not the average person. good luck getting the average monkey to put $10k into 5 "random" stocks for 10 years or more to see what happens.

and I don't know anyone with money in SPY either

go post this in a "real" investment forum and let's see what they say about your comparison chart and numbers

don't get me wrong, I think your advice and knowledge is usually great, but this thread is misleading and weak. too many young kids in here drooling over every word you and people like lookatme and sahht say, to post info like this. do you want to be responsible for some kids putting 10k into random stocks and waking up in 4 months with 5k? good luck dude

 

Holy shit some people still think Darwin was a lying heretic. Just because you don't believe the truth doesn't make it untrue. Portfolio after portfolio beating the index over and over demonstrates the flaw in your investment strategy not the monkey script:

create table stocks symbol as varchar(10) `then` as float `now` as float;
...load the S&P quotes extracted from Yahoo Finance...
select * from stocks where `then` <> 0 order by rand() limit 5;

What that means is select 5 stocks from the table, ordered randomly, which were part of the S&P500 10 years ago. That's about 440 of the 500 stocks.

From the MySQL docs:

How is that not entirely asinine and absent of intelligence and random enough for the purpose??

You keep saying this but you have yet to demonstrate or prove in any way this statement is true. Your simple logic is 100% ass-backward statistically, logically and mathematically.

It's very simple basic math. If you have 500 blocks, 300 are green and 200 are red, and you select at random, with your eyes closed, one block from the pile the odds are 3:2 that you will pick a green block. Simple. Basic mathematics guarantees that you've got a 60% chance of picking 5 winning stocks. Period.

What is true is that 200 of the 500 stocks in the index are losers and the only thing the index gets you is an ironclad guarantee that 2/5ths of your portfolio is crap. You've decided that rather than play the odds (which are in your favor) you'd rather lock in to having 2/3rds being losers to avoid the statistically less than likely possibility of picking a completely crap portfolio.

Forget for a minute that with a very basic knowledge you can better the odds dramtically or that the 2/5ths of the stocks that lose, lose big. Your concept of risk and risk management needs serious rethinking. It doesn't matter to me, you're the only one being cheated and you're ding it to yourself.

 

Allow me to be more precise, of the 500 stocks in the S&P500 today 104 of them are worth less today than they were 10 years ago. 61 were not listed 10 years ago and therefore replace 61 which were listed but were removed either because they were merged, spun off, went bankrupt or shrunk to such a degree they no longer met the criteria for the index. I have no idea which.

I use 200 of 500 for rough calculation but the number is actually more like 125-150. If you want the data you are more than welcome to it.

 

So, by default, your individual stock picks do not include 61 of the worst stocks from the S&P500 in 1998... thereby making your monkey's numbers look better, right?

Additionally... I don't follow your other math up there. You said 200/500 are losers and 300/500 are winners. If you have an index fund, then yes, you'll have the winners *and* the losers. However, if you are picking individual stocks, aren't the odds *exactly the same* that you'll have a similar mix of winners-to-losers... assuming we're just looking at the statistics? In other words, you should expect to have 2 losers and 3 winners... statistically speaking. However, it's definitely possible that you'll get 5 winners, but if you're just picking at random, then that's purely a matter of luck.

 

I'm pretty sure that last statement is just wrong. The odds of picking 1 winning stock from the group is 60%, but the odds of all 5 of them being winners is much less. I'm just too lazy to pull out my old stats books to figure out the correct calculation and solution.

Using the following calculation that I pulled out of my bum, I get about 7.5%:

(((300/500)*5) + ((299/499)*4) + ((298/498)*3) + ((297/497)*2) + (296/496)*1))
divided by
(5*4*3*2*1)

That might not be the right formula, though. I haven't had to do this stuff in about 8 years.

 

No because the S&P500 is a weighted index which means most of your allocation is in the smallest winners. By picking 5 stocks individually and weighting them equally ($2000 each) you get better representation from those in the middle of the pack, those with the highest growth.

Not all of the 60 excluded stocks are losers, some simply got booted by larger newcomers. Stocks like X which was a spin off and GOOG which didn't exist as a public company 10 years ago.

The model isn't perfect but excluding companies like X and GOOG goes a long way toward reducing any margin of error. The bottom line is that no matter how you shuffle that margin you are going to end up with more or less the same result.

It's more likely you'll pick 5 winners than 5 losers but both are possible. Look, the stock money isn't designed to pick a portfolio for you. It's designed to make a simple point:

More often than not picking 5 stocks at random and investing the same amount in each will, over the long term (5, 7, 10 years, you pick), outperform the same investment in the index itself. That's it.

My server isn't lucky, it's logical. That's the whole point of investing in the stock market. You weigh the risks and the odds and you place your bets to that you win more than you lose. There are plenty of strategies published on how to do that and the real point to all of this, the real argument is that the benefits of learning simple investment strategies are so great that you would be a fool to remain ignorant of them let alone recommend to other that they are wise to do the same.

The monkey simply shows that it's neither difficult nor does it require a lot of work. The odds are squarely in your favor right off the bat and with a little simple discipline (even if that discipline is to just not screw with it) you can avoid losing money you would otherwise have made.

All you need to do is read a book or two over the course of your lifetime and keep your cool when things get choppy. For that small amount of effort and learning you can reap massive rewards. I can't get behind the idea that it's too hard or that it's a long shot.

The S&P500 index was designed to measure performance of the top 500 companies. It is not, and never was, a recommended or sane investment portfolio. Choosing it as one is kinda dumb.

 

[QUOTE=mxt_77,Jul 29 2008, 11:08 AM] I'm pretty sure that last statement is just wrong.