Punished by Rewards

If you’ve read the booked “fooled by randomness” you’ll recognize the following joke about the stock market.

The stock market and it’s predictors are like taking a million people into a room and playing Russian roullette. At the end a dozen people will walk out of the room alive and claim they are masters of the game.

This is funny but it got me thinking about sites like “updown.com” and others where we try and find people that regularly pick winning stocks.

I realize now that we are actually ignore half of the value of these sites. That is, we are only rewarding those that regularly pick the RIGHT way. But equally I should also be interested in those that regularly pick the WRONG way as well. If you ALWAYS pick the wrong direction on a stocke, then your advice is equally good as seone that would pick the RIGHT direction. The only difference is, I have to always bet against you. Sites like the updown.com are tossing out half their value by ignore the outrageously and predictably bad stock pickers.

The goal is to be predictable remember. Right or wrong doesn’t matter. What matters is how predictable the outcome is.

It got me thinking about why investment funds are not trolling in the dumpsters of such sites as “updown.com” looking for the ABSOLUTE WORST stock pickers. To my mind their advice is equally as valuable, just for the opposite trade.

What would it be like to go to work and have your boss ask you about a trade and then always do the opposite. You could finally see a reason to reward what would normally qualify as failure.

Peter