How Bloggers Beat Wall Street • Hacker News Board

Re: How Bloggers Beat Wall Street

#11

Post by virincognito » Thu, Jan 20, 2011, 7:10 PM UTC

jpiasetz wrote: post #4

I have several problems with the CNN article this one is based off of. 1. Why take a screen shot of the spreadsheet? 2. Why are there only 11 amateurs? Amateurs greatly out number pro but in this table they're a minority. Seems like sample bias to me. 3. Where is the context and the history? The bloggers all predicted larger increases then the pros. Do bloggers always predict higher numbers? If so it's no surprise th…

Surely bloggers do not only always outperform Wall Street analysts, but there are certainly scenarios, such as this one, where they do get it right. I agree that CNN's sample size could be statistically inaccurate, but the blogosphere is pretty difficult to measure.

I think the point of the article is that the number of individual investors is growing, and since there is such a plethora of information out there and easy channels to share opinions, the financial sphere is rapidly evolving online.

Re: How Bloggers Beat Wall Street

#12

Post by [deleted] » Thu, Jan 20, 2011, 7:18 PM UTC

jhamburger wrote: post #9

fleitz wrote: post #5

This should be expected, bloggers are the 'market'. This is the expected result of the efficient market hypothesis. The market will beat estimates of professionals (or any one individual) most of the time. This is exactly why an index fund will outperform most mutual funds even before the fund manager takes his 2%. The guys that can really guess the market usually start their own hedge fund. And they use ingenious me…

I think you're confusing a lot of different things here. This is dealing with predicting quarterly results, there isn't any direct connection with the stock market.

[deleted]

Re: How Bloggers Beat Wall Street

#13

Post by aspiringsensei » Thu, Jan 20, 2011, 7:37 PM UTC

brown9-2 wrote: post #10

There might be another issue at play here: perhaps the investment firms represented by the professional analysts have incentive to under-predict a company's performance in their public-facing reports.

Do you mean "incentive to predict conservatively" rather than "incentive to under-predict"?

Re: How Bloggers Beat Wall Street

#14

Post by aspiringsensei » Thu, Jan 20, 2011, 7:39 PM UTC

yoseph wrote: post #8

codex wrote: post #2

There are a lot more bloggers than professional stock analysts. Therefore, doesn’t it follow that some bloggers would be the most accurate based on random chance alone?

Well, if in the top 10 there were only a couple bloggers, that would be a reasonable statement, but the top 9 were all bloggers. That doesn't sound like random chance to me.

Bloggers outnumber AAPL sell-side coverage by infinity to 48.

Re: How Bloggers Beat Wall Street

#15

Post by jhamburger » Thu, Jan 20, 2011, 7:39 PM UTC

yoseph wrote: post #7

jhamburger wrote: post #3

Most of the top predictions for Apple's "surprise blow-out quarter" were from the finance section of a message board for Apple enthusiasts. This is like saying the New York Jets' message board is smarter than Vegas sportsbooks because they predicted an upset win over the Patriots.

Hi jhamburger, thanks for the comment! I'm the author of the article and want to present a different perspective: I don't think you're being completely fair to these guys. Sure, they're Apple enthusiasts but they're also digging significantly into the data to back up their analysis. For example, check out one users' analysis on Apple's Cost and Cost Ratios to Revenue: http://www.postsateventide.com/2010/11/apple-quar…

OK so they're not guessing, but they're still biased. I'd like to see them correctly call a bad quarter before I'm convinced.

Re: How Bloggers Beat Wall Street

#16

Post by andylei » Thu, Jan 20, 2011, 7:42 PM UTC

brown9-2 wrote: post #10

There might be another issue at play here: perhaps the investment firms represented by the professional analysts have incentive to under-predict a company's performance in their public-facing reports.

there are many studies that show that analysts are actually generally overly optimistic. there's no issue at play. the sample size here is one

Re: How Bloggers Beat Wall Street

#17

Post by brown9-2 » Thu, Jan 20, 2011, 7:46 PM UTC

aspiringsensei wrote: post #13

brown9-2 wrote: post #10

There might be another issue at play here: perhaps the investment firms represented by the professional analysts have incentive to under-predict a company's performance in their public-facing reports.

Do you mean "incentive to predict conservatively" rather than "incentive to under-predict"?

Sort of, "conservatively" would imply "keeping it safe" when predicting earnings, but I was really trying to raise the question of if the firms have anything to gain by deliberately making public predictions that are lower than they truly believe.

Re: How Bloggers Beat Wall Street

#18

Post by amalcon » Thu, Jan 20, 2011, 7:53 PM UTC

The only people who will be surprised by this are people who do not understand probability.

Nobody expects analysts to be right every time, and nobody expects individuals to be wrong every time. You can't extrapolate a general principle from a single datum.

Now, if this were happening consistently -- amateurs were consistently more accurate than professionals -- then I would be surprised. I would draw the conclusion that the professionals had some other goal than accurate predictions, though, rather than that they were incompetent.

Re: How Bloggers Beat Wall Street

#19

Post by andylei » Thu, Jan 20, 2011, 7:53 PM UTC

yoseph wrote: post #8

codex wrote: post #2

There are a lot more bloggers than professional stock analysts. Therefore, doesn’t it follow that some bloggers would be the most accurate based on random chance alone?

Well, if in the top 10 there were only a couple bloggers, that would be a reasonable statement, but the top 9 were all bloggers. That doesn't sound like random chance to me.

i think a t-test is in order

Re: How Bloggers Beat Wall Street

#20

Post by codex » Thu, Jan 20, 2011, 8:01 PM UTC

yoseph wrote: post #8

codex wrote: post #2

There are a lot more bloggers than professional stock analysts. Therefore, doesn’t it follow that some bloggers would be the most accurate based on random chance alone?

Well, if in the top 10 there were only a couple bloggers, that would be a reasonable statement, but the top 9 were all bloggers. That doesn't sound like random chance to me.

Well, if there were a million bloggers posting random predictions and only one analyst, it would seem, intuitively, that the top nine would likely all be bloggers. It all depends on the number of bloggers that made predictions but aren't in your list. Is it zero? A trillion? Given that most bloggers tend to advertise their successes but not their failures, how can you get a definitive number?