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How Bloggers Beat Wall Street

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Re: How Bloggers Beat Wall Street

#21

Post by nowarninglabel »

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…

Though I liked your comments in the article, I agree with jhamburger, this is a lot different than taking a random sampling of the popular finance bloggers and comparing their top picks vs. the top picks of analysts. You could still allow the bloggers to choose the companies they know best, but you would get more realistic picture of their investing prowess than the results here. That said, I very much agree with the 4 points you stated in the article.

Re: How Bloggers Beat Wall Street

#22

Post by diba »

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.

Yeah, my friend who is more knowledgeable than myself in equity trading said this a few days before apple reported earnings:

"The reason is so that on earnings day, AAPL can crush "consensus" earnings estimates and have their stock price increase. This is what Steve Jobs wants to happen, and the street analysts are happy to fall in line so that he'll continue to meet with them (or their clients) and/or do business with their firm if Apple ever needs investment banking advice

The next question you might ask is: doesn't this look bad for Apple if people are projecting worse earnings into the future? Don't stocks trade loosely on things like P/E ratios?

The answer is that if you look out a full year, the effect is actually the exact opposite, analysts tend to be way too optimistic (linkhttp://www.ritholtz.com/blog/2010/06/mckinsey-equity-analyst...; ).

You can see how this would work. You look at earnings estimates a year out and think: "man, this stock looks pretty good if earnings are going to grow X% over the next year". And then you look at the next quarter results and say "man they did better than expectations! This stock must be REALLY good. Maybe they will grow at X+5% over the next year!".

What you failed to realize was that earnings estimates will be decreased over the course of the year like clockwork, and eventually that yearly estimate that was too bullish will turn into a quarterly estimate that is too bearish.

The result of all this is the the graph above, with amateurs forecasting an extra 10% in quarterly revenue and extra 20% in EPS."

Re: How Bloggers Beat Wall Street

#23

Post by czhiddy »

jhamburger wrote: post #15
yoseph wrote: post #7

Earlier quoted context omitted.

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.

When was the last time Apple had a bad quarter? :-)

Re: How Bloggers Beat Wall Street

#24

Post by hugh3 »

czhiddy wrote: post #23
jhamburger wrote: post #15

Earlier quoted context omitted.

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.

When was the last time Apple had a bad quarter? :-)

1997?

http://www.windowsitpro.com/article/news2/apple-posts-708-mi...

"The red ink just won't stop flowing from Apple Computer these days, as the company posted a tidy US$708 million loss this quarter. This is only one year after posting a $740 million loss in the same quarter of 1996. Apple said the loss contains a one-time $155 million charge for restructuring and a $375 million write-off to cover the acquisition of NeXT...

"We will return to profitability," said [CEO] Amelio, apparently to himself. Everyone else had stopped listening, except of course "MacWeek," which reported this story as "Company reports $1.6 billion in revenue." I guess that's one way to look at it"

(Fun fact: if you'd bought $10,000 worth of Apple shares in 1Q of 1997 they'd be worth eight hundred thousand dollars nowadays.)

Re: How Bloggers Beat Wall Street

#25

Post by hugh3 »

virincognito wrote: post #11
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 e…

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.

s/bloggers/chickens/

Seriously, if I have a bunch of chickens pecking at labelled buttons to predict corporate profits and I only bother to report those cases where they happen to be right then my chickens are gonna come out looking pretty good as well.

Re: How Bloggers Beat Wall Street

#26

Post by virincognito »

hugh3 wrote: post #25
virincognito wrote: post #11

Earlier quoted context omitted.

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 e…

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. s/bloggers/chickens/ Seriously, if I have a bunch of chickens pecking at labelled buttons to predict corporate profits and I only bother to report those cases where they happen to be right then my chickens are gonna come out looking pretty good as well.

I think you're missing the point. The argument isn't that bloggers as a whole perform better than professional analysts, it's that there are far more sources to get information about the market these days than just Wall Street analysts. Bloggers are one of them, and there are times that they are right.

Some blogs are about as reliable as pecking chickens, but some spend considerable time researching and developing solid insights. Generalizing and discounting every single one is a bit rash.

Re: How Bloggers Beat Wall Street

#27

Post by hugh3 »

virincognito wrote: post #26
hugh3 wrote: post #25

Earlier quoted context omitted.

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. s/bloggers/chickens/ Seriously, if I have a bunch of chickens pecking at labelled buttons to predict corporate profits and I only bother to report those cases where they happen to be right then my chickens are gonna come out looking pretty good as well.

I think you're missing the point. The argument isn't that bloggers as a whole perform better than professional analysts, it's that there are far more sources to get information about the market these days than just Wall Street analysts. Bloggers are one of them, and there are times that they are right. Some blogs are about as reliable as pecking chickens, but some spend considerable time researching and developing so…

But unless there's someone whose advice is reliably better than the market, then merely knowing that some people are better some of the time isn't useful information.
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