EDIT: Based on criticism below, I am reconsidering how to proceed with this idea (or something in the neighbourhood).
A topic that has been on my mind recently is where, in our complicated lives, there might be low-hanging fruit ready to be picked by a motivated rationalist. Actual, practical, dollars-and-cents fruit.
In possibly-related news, here is how the writer of About.com's beginner's guide to investing describes the stock market:
Imagine you are partners in a private business with a man named Mr. Market. Each day, he comes to your office or home and offers to buy your interest in the company or sell you his [the choice is yours]. The catch is, Mr. Market is an emotional wreck. At times, he suffers from excessive highs and at others, suicidal lows. When he is on one of his manic highs, his offering price for the business is high as well, because everything in his world at the time is cheery. His outlook for the company is wonderful, so he is only willing to sell you his stake in the company at a premium. At other times, his mood goes south and all he sees is a dismal future for the company. In fact, he is so concerned, he is willing to sell you his part of the company for far less than it is worth. All the while, the underlying value of the company may not have changed - just Mr. Market's mood.
I have heard this narrative many times before, and I'd like to test whether it is accurate - and in particular, whether LWers can consistently beat the market.
The skeptic may well ask: why should LWers have an advantage? Why not go to the professionals - investment advisors? Also, isn't there a whole chapter in Kahneman about how even smart people suck at picking stocks? And what do you, simplicio, know about this anyway?
LWers may have an advantage by virtue of being educated about such topics as cognitive biases, sunk cost fallacy, probabilistic prediction, and expected utility - topics with which investment advisors et al. may or may not be familiar on a gut level. I am not sure if we're any better, but I'd like to test it. Also, if LW turns out to be any good at offering such advice, that advice would presumably be free, unlike that of yon advisor (fees tend to kill returns on investment - just ask anybody who uses Intrade). As for what I personally know - not very much yet. But I find competition very stimulating.
Accordingly, my proposal is for a contest: over the course of 2013, I will set up & maintain a Google Drive spreadsheet. This spreadsheet will be shared with contest participants. Each participant will have say $5,000 of play money to use "buying" (or "selling") stocks on the exchange of their choice. Contestants will record the date of purchase or sale, quantity, and preferably provide comments regarding why they are buying or selling.
At the end of this contest (Dec 31, 2013?), I will commit to Paypal the winner (defined as the person with the highest market valuation of play assets as of midnight on that date) the equivalent of $50 CAD in their local currency. In the unlikely event that I win, I will donate that $50 to the Against Malaria Foundation. (Above commitment does not take effect until I actually gauge interest in this contest, figure out an end date & rules etc., and decide to proceed. If anyone else wants to throw money in the pot, please do.)
The purposes of this post are therefore:
- to find out who is interested - please leave a comment below, and e-mail me at ispollock [at] gmail.com if you want in;
- to solicit constructive and destructive criticism of the project, especially from any local experienced investors (in particular, perhaps a one-year timeframe is too short for a meaningful contest? Also, real-world experience of transaction costs in buying and selling would be extremely helpful);
- to ask if anyone knows of a better software platform for the contest than Google Drive, or knows of any extremely helpful resources I should be reading/linking to.