Crashing a Stock-Picking Contest

I have a habit of sticking my nose into a stock-picking contest several bloggers have been running for the past 4 years. Fresh from working out my 2012 return of 8.03%, I’m ready to crash their 2012 contest. Each year my actual portfolio return has been above average among the contest entries and this year is no different. (For discussion of the 2011 results see the last paragraph here, and for 2010 see here.)

The big winner this year was Preet Banerjee at Where Does All My Money Go? with a 35.6% return! In fact, Preet has the best 4-year record by far among all the bloggers in the contests. This is amusing because Preet seems to take it the least seriously. In one contest he “picked some three letter words at random and then found the ticker symbols to match those words.” With FUN, HAT, ADD, and CAR in 2010, Preet came in second place. His disclaimer tells people considering buying his picks to “RAISE YOUR RIGHT HAND BEFORE PLACING THE ORDER AND REPEAT, ‘I AM A NUTBAR’.”

So, how have my actual portfolio’s returns compared to the bloggers’ picks in these contests? Here are my rankings and comparison to the average blogger return:

2012: 4 above me, 6 below me, 5.3% above average
2011: 3 above me, 6 below me, 8.7% above average
2010: 4 above me, 5 below me, 4.3% above average
2009: 3 above me, 6 below me, 10.7% above average

Starting with $10,000 at the beginning of 2009 and dividing it equally among the blogger picks each year, the bloggers would have held $12,984 at the end of 2012. This same $10,000 in my portfolio would have grown to $16,869.

Does this make me a great stock picker? Absolutely not. My portfolio has been mostly in index ETFs. I was lucky that the few individual stocks I hadn’t got around to selling happened to outperform the index. The bloggers in the contest collectively failed to match either the S&P 500 or the TSX.

The funniest results come from a blog called Beating the Index (the web page on this blog discussing the results has disappeared, presumably out of embarrassment). This blogger has been participating for 2 years with the following results.

2012: -51.6%
2011: -44.1%

Beating the Index blames the poor results on the rigid contest structure that does not permit trading mid-year. About the type of stock he chooses, he says “This is a sector where you HAVE to be pro-active: cut losses and take profits.” We can only imagine what the results could have been like if trading were permitted. Instead of losing a cumulative 73% in 2 years, perhaps trading to a few other stocks in free-fall would have lost 90% or more!

All this brings to mind a variant of an old joke:

Q: How can you make a million dollars?
A: Start with a billion dollars and spend 10 years trying to beat the market.

Index investing may not be much fun if you happen to like analyzing stocks, but for most investors, sticking with indexing is more profitable.