Is investing a luck or skill

Over the last few years, many new investors have entered financial markets lulled by the promises of making “easy money”, “quick returns” etc. Investing involves both luck and skill and when you are on a roll, unfortunately most believe success to be a function of your skill. Is there a way to gauge if investment returns are more luck or skill.

stock market
stock market

Introducing a fictional character – Random! The tweet bio of Random describes it as “Stock Market Enthusiast, Follower of Buffet, Charts, Bhav Bhagwan Che, Elliott Wave , Quant, FnO, CoffeeCan Crypto

Random has done the following every month since 2000. From a universe of stocks which are within 90% of the overall market cap of listed stocks (thus avoiding micro-caps and other illiquid securities), Random creates 1,000 random portfolios of equal-weighted 50 companies. Similarly, Random creates another 1,000 portfolios whose individual stock weights vary from 0.5% to 9.5%. Thus, running 1,000×1,000 simulations (million portfolios of random stocks and random weights) and holding these portfoli.

stock market
stock market
A percentile score closer to 50 for Nifty50/NSE500 will reflect broadly a market where random portfolio distribution has equal chances of returns above and below returns of Nifty50/NSE500. (And so, near equal measures of luck and skill). Similarly, a very low percentile of Nifty50TR/NSE500TR would mean almost all random portfolios have given much higher returns, giving a sense of luck or rising tide lifting all boats. Conversely, a very high percentile score of Nifty50TR/NSE500TR


Leave a Reply

Your email address will not be published. Required fields are marked *

Next Post

DreamFolks Services, Delhivery, Hindustan Zinc, V-Mart, Sembcorp Industries stocks in focus on September 6

Indian equity markets are likely to open higher today as ahead of the trading session, SGX Nifty was in the green, hinting at a positive start for NSE Nifty 50 and BSE Sensex. Here are the stocks in focus today Indian equity markets are likely to open higher today as […]
stock market

You May Like

Subscribe US Now

Error: Your Requested widget " newsletterwidget-2" is not in the widget list.
  • [do_widget_area fullwidth-homepage-sidebar]
    • [do_widget_area sidebar-1]
      • [do_widget id="search-2"]
      • [do_widget id="recent-posts-2"]
      • [do_widget id="archives-2"]
      • [do_widget id="categories-2"]
    • [do_widget_area widgets_for_shortcodes]
      • [do_widget id="newsletterwidget-2"]
    • [do_widget_area wp_inactive_widgets]