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Wednesday, November 30, 2005

Can Professor Pigskin Pick Stocks?

In the movie Grand Canyon, one of the characters says "The answers to all of life's questions can be found in the movies." He was wrong - actually, all the answers can be found in The Simpsons. Here's a great illustration of how random chance can produce what looks like superior forecasting:
Homer: Doh, the Broncos won! Why didn’t I bet on them like Professor Pigskin told me too?

Lisa: Who’s Professor Pigskin?

H: He’s a pig who can predict football winners in advance.

L: How is that possible?

H: Because he’s got something no gambler’s ever had. A System! I’ve got the pamphlet four weeks in a row and every time the pick of the week has been right on the money.

L: Ohhhh. I get it. Every week they send out two pamphlets, half picking one team and half picking the other. Eventually, there’s a small group of people who only receive the correct predictions and think Professor Pigskin is always right. That’s when they ask for your money.
HT: Blogging Wall Street.

I wonder if Professor Pigskin picks stocks?

This is similar to an example I regularly use in class to illustrate how quite a few mutual funds could end up beating the market five (or even ten years) running just by chance.

Now I'll use Professor Pigskin instead.

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