Experts Vs. Darts in Wall Street Journal Contest: Go With the Darts


Isn't the Wall Street Journal feature Experts Vs. Darts great? The newspaper pits investment experts against a bunch of reporters who "select" their stocks by throwing darts at the stock tables. Experts share their top stock picks with readers and alongside, reporters share theirs.

This year, the experts have done quite well against the dartboard selections as well as against the stock market indices. The experts have also done well over longer periods of time. For example, between 1990 and 1992, the experts saw their stocks deliver an average annual total return of 9.5 percent, far better than the 6.9 percent the darts earned and significantly better than the S&P 500 index average return of 4.3 percent.

Makes a pretty good case for those who argue that you can beat the market, right? Wrong.

Professor Burton Malkiel of Princeton University, who for decades has been arguing that you can't beat the market, and a colleague found that the stocks the experts picked were risky. They were far more volatile than those the reporters picked using darts or the stocks that make up the S&P 500. When the stocks of the three groups are adjusted for risk, the returns of the experts fall precipitously below those of the dartboard or the index.

Professor Malkiel goes further. He argues that the unadjusted returns of the experts were higher because Wall Street Journal readers noted the selections after they were published and then bid them higher. Had the experts chosen their stocks on the day the stock picks were published instead of the day before, their return would fall a whopping 3 percentage points!!!

The bottom line: the next time the contest results are posted and the experts select new stocks, check out how risky they are compared to your current holdings before you jump into them. Make sure you're not buying them just because everyone else is and because they were recommended by some "expert."

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