Crowdsource Your Stock Picks?

There are bull markets and bear markets, but what about a moose market?

The Stock Moose is a casual, addictive game that presents you with performance charts for two stocks side by side and lets you choose which one you would buy. The Moose instantly tallies everyone’s choices and displays the most desirable stocks based on all players’ decisions.

Can a crowd predict which stocks will go from good to great better than an informed individual?


John

Re: posts 12 and 13, two recent books may be of interest/relevance: Michigan prof Scott Page's The Difference extols the virtues of crowds making predictions (stocks or otherwise), a claim in line with these posts. But also, a popular book last year was Taleb's The Black Swan, which discussed how conventional models do not foresee a 'big whammy' coming (be it a stock slide, market crash, 9/11, etc.). Great stuff to think about and not just about markets, as 12 noted.

Percy

The Stockmoose site is too new for me to judge its utility (though it is a fun way to enter one's opinions). But one thing's for sure: the entire concept of crowd-sourcing stock picks isn't going to win many friends in the professional investment community. Can the unwashed masses working together actually out-predict those folks who have dedicated their entire lives to financial analysis? Who knows, but if this moose proves to outsmart the pros, he better not set hoof in lower Manhattan without burly bodyguards!

Mark

I look at the Stock Moose (perhaps North America's second-most equity-savvy land animal) as a poll, a collector of crowd-wide emotional attachment to the various companies. Nice, but what I need is a way of seeing the changing sentiments from week to week, e.g. are more and more people voting against Sun Micro over time? Who knows? This could be a useful leading indicator as regards the actual stock price.

Marc

In my opinion, the Motley Fool Caps system (found here http://caps.fool.com/) is much more interesting in terms of crowdsourcing picks and they have come up with some great market beating data, (found here: http://www.fool.com/investing/general/2007/11/28/the-top-stocks-and-the-top-returns.aspx?)

Sci Ed

Crowds can definitely predict which stocks will rise better than an informed individual. After all, in the short run, the price trend of the stock reflects what the market (read the masses) think of the stock's future potential. Therefore we are really dealing with a circular process. In fact, the crowd does not just predict the price of the stock, it in fact causes it to either rise or fall based on the crowd's outlook of the stock.

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Dan M.

I just backtested the top 10 picks of the Nasdaq 100 in my equity trading program (Power E*trade pro). Over the last 15 days, had you invested in the Moose's top 10, you would be down almost 10%. This is assuming you had bought on the open 7/10 and sold today at 3pm +/-. I found a mild statistical correlation to show that shorting these 10 stocks would have been a successful strategy.

Of course, 15 days is a lot shorter than most people's investment timeframe, but it was interesting to play around with.

Tax Lawyer

I have a different take on this. Many of those who participate likely already hold most of their picks. They look for consensus that their holdings are "popular". The value of the site from my perspective would be to short the most popular stocks, because people already hold them, are worried about their investments, and looking for a consensus, and reaffirming that their picks are popular. The herd mentality.

Too much optimist about the prospects of a popular stock is a sign of a top, and the right time to begin shorting. I shorted CSCO from 2000-2004, and that was my best performing pick, based on excessive optimism.

kevin

I just built a mashup of the data from stock moose and integrated it with my online trading tool, thus the effect of this tool is now rendered useless. :)

Jeff

The Motley Fool has run a similar concept since late 2006 called "CAPS" whereby a user picks a particular stock to out/underperform the S&P 500 over a given timeframe, and then grades each user on the accuracy of their picks. This allows users to analyze the overall community sentiment for a given stock or monitor the choices of the best pickers (somewhat along the lines of post #4 looking for a more qualified subset vs. "mass crowd" opinion).

Canuck

there's a moose loose aboot the hoose.

Jett

Great stuff for seeing relative sentiment on stocks. This is another perspective along with technical & fundamental analysis that cannot be ignored. Some people may argue that the all information is already captured in the market based on the efficient market hypothesis. This is wrong. The large institutional funds control the market along with the herd of analysts. So information and knowledge exists from individual voters that can be valuable beyond today's current price.

Kevin

The stock moose just poses false dichotomies and expects to gain useful results out of it. Given the choice to buy Yahoo or Netflix, I'd rather do absolutely nothing. I don't want to own either of those stocks right now. The only way this could be made somewhat useful would be to give a list of more stocks in a sector, and then you might be able to figure out what people think is the best stock in the sector. But this still has an issue: If you gave me a list of airline stocks and asked me to pick one to invest in, I'd rather invest in none of them.

Will

The real market asks you to choose from a huge pool of stocks. The moose frees you from the paralysis of choice and boils it down to a simple question.

Robert

I think that is precisely it. You get unbiased barometer of fear and greed. Now, if you can get a segment of the crowd such as Silicon Valley crowd (engineers) to vote on Mooses' 25 Silicon Valley tech stocks, the calibration of that barometer gets significantly better. At that point, the results can be very, very interesting.

Robert

Great analysis, Dan. Certainly, a statistical correlation to short or go long would prove to be useful at minimum as another financial indicator to consider. I think if your sample is significantly large there always will be a correlation, the trick is to find out what kind and can you fine tune the target where you get your sample from so that you get the answers you want.

Mike

I don't get it. How is the Moose market different than the real market, except that the barrier for entry is lower, hence the "guessers" presumably have less information, less at stake, and less expertise?

matthew Heintz

I agree with mike. In all certainty it will be begin with people with limited market knowledge, whom will just take the stocks with either 1) higher beta (not understanding market risk) 2) companies that have a really high Price to earnings ratio (not realizing that future profit expectation is already imbedded into price)...and then if it comes popular will eventually be 50/50...especially when arbitragers come in realizing the real market is the most efficient predictor.

Chad

I'm putting my money on Sun Microsystems.

Robert

Post 18, I think you are missing the point. The idea here is to present two stocks and the user picks the better of the two (both of them may be terrible choices but you pick less terrible one nonetherless). The moose circulates the stocks so that next time your less terrible choice gets matched to another stock and you may pick that one. In such way, it bubbles up the stocks that you ultimately like the most (or hate the least). If done over S&P 500, it basically tallies in such way the most liked stocks by the crowd.

Commoner David

Are we focusing too much on the stocks portion of this question, and should we perhaps focus on the heart of it? I.e, Who knows better the informed few or uninformed masses. This was a question posed by Sir Francis Galton in his attempt to prove that when electing officials of government, the educated, informed few should be the only ones to vote. Of course the informed "higher classes" knew better than the commoner! However, in his own research he proved himself worng. As I'm sure it has been shown in much research that followed. When posed with a question, taking the average of the answers will give the best result. The more answers the closer the result to the actual. Look at the statistics for how often the audience is correct on Millionaire. The audience is correct over 90% of the time. Thank you Nova Science Now!