This Week In Finance

This Week's Discussion Starter

"Are Stock Prices Predictable? Finally Someone Puts Their Money Where Their Mouth Is"

Always on the lookout for examples to use in explaining the EMH to intro corpfin students, I came across the following item in the May 1, 2000 issue of the Investment News.

"For Better Odds, Try Lotto"

"Stock pickers don't have to wait for the next hot IPO for a chance at a million bucks. Investors Forecast, a one-year-old website, says it will pay a prize of $1 million to the sage who can accurately predict the level of the Dow Jones Industrial Average and price five stocks correctly, one week in advance. The odds, however, are more than one in 200 million. Investors might be better off playing the lottery. "The Powerball is one in a hundred million," admits John Dick, president of the Lake Forest, Ill., company. The website has a more utilitarian purpose, too. Investors make predictions on stock prices for the upcoming week, so the site is a handy reference to gauge investors' sentiment. Prizes in the past have been less grand, averaging about $800 a week, and going to people with the closest, rather than the exact, set of predictions. But folks forecasting stocks know more about the market than people randomly picking num-bets for the lottery, argues Mr. Dick. "You know Dell is not going to go to zero," he says. The web address to pick and play is www.investorsforecast.com."

Ask your students to consider the implications of this offer. Why are the odds "more than one in 200 million"? Assuming that Mr. Dick is not simply an eccentric millionaire with bushel baskets of cash to give away, it would seem that this is anecdotal evidence that accurate market prediction is a hard thing to do.

On the other hand, maybe someone will win the $1 million next week . . . .