In my previous blog, I showed that investors tend to chase trends but don’t do a good job relative to a passive buy-and-hold investment strategy. Since you may not be convinced by research based on aggregate data, here’s a simple test of your prediction skill. Below are eleven charts of daily “stock prices”. Only 5 of these charts are the prices of real stocks. The rest are fake prices, generated based on a random process much like flipping an unbiased coin. The test: identify the 5 real stocks (answers are at the bottom).
Answer: Series number 3, 5, 7, 9 ad 10 are real stocks. Notice how the randomly generated ‘prices’ look awfully like real prices, enough to fool even experts, as the title of the Nassim Taleb bestseller, Fooled by Randomness suggests.