
How Bloggers Beat Wall Street - virincognito
http://blog.vuru.co/post/2843102172/how-bloggers-beat-wall-street
======
jhamburger
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.

~~~
yoseph
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-
quarterly-compa...](http://www.postsateventide.com/2010/11/apple-quarterly-
comparison-of-costs-and.html) (Found here:
<http://www.macobserver.com/tmo/forums/viewthread/79667/>).

~~~
jhamburger
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.

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

~~~
hugh3
1997?

[http://www.windowsitpro.com/article/news2/apple-
posts-708-mi...](http://www.windowsitpro.com/article/news2/apple-
posts-708-million-quarterly-loss.aspx)

 _"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.)

------
amalcon
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.

------
jpiasetz
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 they did this time.

~~~
virincognito
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.

~~~
hugh3
_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.

~~~
virincognito
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.

~~~
hugh3
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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codex
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?

~~~
yoseph
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.

~~~
codex
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?

------
brown9-2
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.

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

~~~
brown9-2
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.

------
fleitz
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 methods, such as one hedge fund that orders satellite
photos of Wal-Mart parking lots and estimates quarterly performance based in
part on those photos.

~~~
jhamburger
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.

