Saturday, June 18, 2011

Good calls from Private Investors

In a previous post, on 18 January, I noted down the top ten buys and sells by private investors, as reported by TD Waterhouse. A cynic might say think that the activities of a private investors like me would be good contrary indicators. In fact, there seems to be collective wisdom.

Here's what I did: I looked at the top ten buys, and top ten sells, and ignored any shares that were on both lists. I then calculated the average return of the remaining shares. Three shares appeared on each list. Here's what I found:

Buy list:
ARM           +12%
Aviva          +3%
Amur Minerals -12%
Average        +1%

Sell list:
Gulf Keystone -17%
Bowleven      -19%
Max Petroleum -26%
Average       -24%

During that time, the FT-ALLSHARE index went from 3120 to 2985, a return of -4%.

In other words, shares that investors thought were buys went on to outperform the market by 5%, whilst the shares that investors thought were sells went on to underperform the market by a massive 20%. Interesting, no? I am tempted to repeat the experiment at the end of the month.

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