Stock Market Contest Results

January 9, 2010

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Back on April 15, when the Dow was at 7920.18, I launched a stock market contest between a team of three personal finance bloggers (team Goliath) and a team of folks who, while they were intelligent, did not immerse themselves into finance at quite the same level (team David).

So, who won? Team David, of course. Don’t you people read the bible?

Every participant was at least somewhat bullish, with the lowest guess being 8232. Peter Rabbit of Team David (who would later join the staff of The Soap Boxers) was the closest, but even his guess of 9500 was more than 900 points below the actual December 31 close of 10428.05.

Everyone on Team David had a guess of at least 8492.48, while the highest guess from Team Goliath was 8400 (Team Goliath had a very tight spread in their guesses). Thus, Team David slays Team Goliath … and it wasn’t even close.

For your reading pleasure, I present the original article below, in its entirety.

The Soap Boxers’s Stock Market Challenge, 2009

The rules:
Each player predicts the closing value of the Dow Jones industrial average at the close of day on December 31, 2009. Points are awarded on a 12-10-8-6-4-2-0 basis for being closest to the actual closing value. The score of all players on each team are added together, and the best team score wins.

I will update the contest every month, focusing on the actual rate of Dow rise or fall compared to the guesses. For example, if a player guesses a 850 point increase and the Dow increased 100 points in the first month, they would be on target. This relies on a false assumption that the market will move similarly in each month.

Note: this contest is for entertainment purposes only and is not to be construed as investment advice.

The predictions:

Team Player Guess
Team Goliath Trevor from Financial Nut 8400
Team Goliath Lazy man from Lazy Man and Money 8232
Team Goliath Heidi from BankerGirl 8250
Team David Peter Rabbit 9500
Team David Phil Ossifer 8500
Team David Black Hole 8492.48
No Team The Soap Boxers 8999

Team Goliath

Team Goliath consists of three people who write blogs related to personal finance.

Trevor of Financial Nut
Why do I choose 8,400? Though I do not necessarily agree with Keynesian economic theory, I do feel that some of this spending is going to create some jobs and allow for money to be injected back into the economy. By this time I would imagine that many of the Obama Administration’s plans to deal with all of these “toxic assets” and to create employment in an increasingly dying economy will be in place. Right now the plans are only being discussed and just barely being implemented.

In addition, recessions in the past haven’t lasted much longer than what we’ve had. This one is, however, very unique and may be longer.

But at the end of the day, who really knows?! 🙂

Lazy Man of Lazy Man and Money
Although some suggest that much of the recent drop is psychological, I think that much can be explained by the large amounts of credit that were extended over the last 10-15 years. More money in the system allows earnings to rise – which results in a lower P/E ratio – making it easier for buyers to justify higher prices.

We’ll see what happens in a bad economy where the earnings drop not just due to the lack of buyers, but the lack of easy credit.

I do, however, think much of the damage is priced in now. Although I am not a currency expert, I think it will be important to watch the impact of the stimulus package on the dollar in the next 8+ months.

Heidi of Bankergirl brings a bit of sugar and spice to a group filled with snails and puppy dog tails.
Based on historical data, we have yet to hit the low for this economic cycle. I think that sometime in the second quarter (or possibly early Q3) of 2009, the dow is going to hit its low. It will recover throughout late Q3 and into Q4, but it will land around the low-to-mid 8000 mark.

Hope I’m wrong – my job is much more secure once we are back up to around 10,000.

Team David

Team David consists of three people who have ordinary jobs and do not write about personal finance.

Peter Rabbit is an IT Auditor.
The last few reports on housing and the purchase of durable goods were very encouraging. These are lagging indicators when we enter a recession as well as when we come out of one. This signals to me that the worst may be behind us. By no means are we in a period of growth but we may have stabilized. Basically, I am betting that we have about 4 more days of 500 point gains sprinkled in the next few months. But otherwise you will see a lot of +100 and -100 point days that just pass time and wash each other out.

Phil Ossifer is a computer systems analyst and has recently launched the (not finance) blog Chunga Goes Wild
Stocks WON’T perform like they did over the last 80 years. Unique circumstances of that period are unrepeatable, e.g., post-Industrial Revolutionary growth, outcome from wars, political/demographic changes, etc.

Monetary policy will float us for a while, but also leads us toward a serious, long-term decline. We now have more debt than any nation; we have a negative savings rate – and yet we look to more spending for the answer. Over-consuming and under-producing is not sustainable!

Finally, analysis based on a few known factors like bad mortagages, trade deficits, and economic cycles are short-sighted. We are now in a complex, unpredictable, global system (think: Chaos theory). Cheers!

Black Hole is where logic goes to die. Fittingly, he works in human resources.
In the past month, the Dow has been on the incline, and I think it will be up and down (in small variances) throughout the year, but I think towards the end of the year it will climb a little more steadily. Banks will become more stable than they are now, and the economy is receiving such a boost monetarily that it will definitely turn around and quicker than other “recessions”.

Free agent
The Soap Boxers will not be a member of a team, but I will be awarded points on the basis of my finish. Thus, a good showing by TCO can serve as a spoiler for one of the teams. Think of me as the guy in the middle of a game of “keep away”.
I personally believe that much of the recent drop in the market is due to psychological factors. A lot of really good stocks are getting beaten up. When the Dow was hovering around 6500, P/E ratios were at five year lows. This is a time to snap up some solid blue chip stocks at good prices. I think that there will be some slight corrections in the near future, but that we have hit bottom and that the market will turn the corner once spring is in full bloom. The positive energy of spring will improve the mindset of potential investors.

Play at home

Submit your own guess in the comments sections. Invite your friends to compete against you. I will also track the guesses of commenters in the monthly update. Only guesses made before April 30 will be included in the monthly updates (sorry, had to make the cutoff somewhere).

One Comment (+add yours?)

  1. Peter Rabbit
    Feb 11, 2010 @ 10:30:20

    I was thinking about this the last few months but forgot to check the results.

    I believe that a lot of good market watchers exist. My guy is still Jim Cramer (Mad Money) even though I don’t always agree with him and actually the most money I made in one stock was betting directly against him. He said don’t buy a stock (it was GM) under any circumstances. He described the cons, I said to myself they were not that bad and bought in. In a few months I doubled my money. Anyway, over the last few years I lost more than I won as has everyone so enough war stories.

    My point was that I think professionals should be taken with a grain of salt and if you have a less significant amount of money (<250k) then just managed it yourself by doing research and mainly investing in Index Mutual Funds.


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