1/19/08

Random Stock Picking Experiment

At some point in the (near) future, I will review various investing newsletters and investing gurus. For some time I've had a theory that most newsletters and gurus that have decent performance records owe them not to their investing acumen but to the number of their picks. Over time stocks as a group tend to go up. You pick enough stocks, and your performance shouldn't be bad. That is my hypothesis.

In the late 1990s, there used to be something called Monkeydex. It was an index of stocks picked by a monkey, and its performance beat that of many professionals. Sadly, it appears that the index is no more. I've decided to create my own version. Its results will be one measure against which gurus and newsletters will be compared.

Every weekend, I will randomly pick 10 stocks, and their performance will be monitored for a year and a day (so they would be taxed at the long term capital gains rate). I will use the picked stocks' closing price on the last trading day before they are picked (usually a Friday), and keep track of them on Yahoo! Finance's portfolio feature and on Stockalicious (look for the widget on the left hand side).

My method for randomly selecting 10 stocks a week will be as follows. As I could not find a list of the stocks tracked by the Wilshire 5000 or the MSCI Broad Market Indexes (please email me or post a comment if you happen to know where a list can be found), I decided to use the holdings of Vanguard's Total Stock Market ETF (VTI). It has over 3,600 stocks at the time of writing. You can see the list here.

I will take this list, and paste it at a list randomizer. It "generates mathematically random numbers based on noises recorded by a microphone in Ireland, and then returns your list in the randomized order." The top 10 will be the random stocks of the week.

There will probably be a bear market in the near future, but I think it's too much work to have both buy picks and sell picks (I'm a slacker, after all). Over time, I think the random portfolio will do better than many professionals anyway.

So here they are, our first 10 random stock picks with their closing prices on Friday, January 18, 2008:

  1. CryoLife Inc. (CRY) $8.28
  2. Peoples Bancorp, Inc. (PEBO) $21.3
  3. Omega Healthcare Investors Inc (OHI) $15.71
  4. Dominion Resources, Inc. (D) $44.24
  5. Corporate Office Properties Trust, Inc. REIT (OFC) $28.08
  6. Parametric Technology Corp. (PMTC) $14.83
  7. Endologix, Inc. (ELGX) $2.65
  8. Peregrine Pharmaceuticals, Inc. (PPHM) $0.37
  9. Leadis Technology Inc. (LDIS) $2.62
  10. Dover Downs Gaming & Entertainment, Inc. (DDE) $9.23