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Tuesday, July 5, 2011

Stock Picking Contest

Dividend Growth Investor has a 6-month update on a stock-picking contest he and several fellow bloggers entered into at the beginning of the year (in fact, have been doing for a few years) Contests like these are interesting to indexers as well as to stock pickers. Indexers believe that most investors are better off seeking to attain the returns of the market. Most stock pickers would tell you that their four best picks would beat the market.

In this spirit, imagine if we ran a pension fund and decided, after doing an exhaustive manager search, to hire the nine contestants and give them each $5 million to manage with the mandate to beat the S&P 500. Alternatively, we can easily match the S&P 500 with an index approach and pay much less than we pay professional managers.

At the midway point, the average return of the 9 contestants is 2.14% versus the 5.90% year-to-date return on the S&P 500. This is one of the results the indexers and stock pickers are interested in, but it is short-term and would only be revealing after at least 3 years or so.

Another fascinating exercise is to look at the results and try to pick the winner for the next period. This, of course, is what mutual fund investors try to do all the time. Keep in mind that the contestants only pick 4 stocks and may be nowhere near being representative of their actual portfolios.

In any event, I believe the contest is worth following and yields interesting data.



  1. Take a look at Bill Miller, Ken Heebner and Bruce Berkowitz so far this year.

  2. I missed joining the challenge, but it is indeed fascinating! Your comparison with S&P is worth pondering over!