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The Stingy News Weekly (01/12/01)

The Markets This Week

  DOW 30: 10,525.38 -1.28% to a P/E of 27.1
  TSE 300: 8,716.40 +0.30% to a P/E of 22.6

The markets were mixed this week with the DOW down and the TSE up slightly. P/E ratios remain sable, but are still a touch on the high side. Yawn.

The Winter Warmth Contest

Inspired by Hersh Shefrin's book "Beyond Greed and Fear" I'm starting a contest similar to one that was run by the Financial Times in 1997. Hersh's description of that contest is:

"Readers were told to choose a whole number 
between 0 and 100.  The winning entry would be 
the one closest to two-thirds of the average entry.

The Financial Times provided the following short 
example to help readers understand the contest: 
Suppose five people enter the contest and they 
choose 10, 20, 30, 40, and 50.  In this case, the 
average is 30, two-thirds of which is 20.  The 
person who chose to enter 20 would be the winner.

What is the point of this pick-a-number game?  
The point is that if you are playing to win, you 
need to understand how the other players are thinking.  
Suppose you think everyone who enters the contest will
choose 20, since that is the winning choice in the 
example.  In that case, you should choose the integer 
closest to two-thirds of 20 or 14.

But you might reflect on this for a moment, and wonder 
whether most other entrants would also be thinking 
along these lines, and therefore all be planning to 
choose 14.  In that case, your best choice would be
10.  And if you kept rethinking your choice, you would 
eventually come down to choosing 1.  And if everyone 
thinks along these lines, then the winning entry will 
indeed be 1.

But in a group of normal, even well-educated, people, 
the winning entry will not be 1.  In the Financial 
Times contest the winning choice was 13. [...]  The 
real point of this game is that playing sensibly 
requires you to have a sense of the magnitude of the 
other players' errors.

The pick-a-number game illustrates two of the three 
themes of behavioural finance.  People commit errors 
in the course of making decisions; and these errors 
cause the prices of securities to be different from 
what they would have been in an error-free 
environment."

The rules of the Winter Warmth Contest are similar to those mentioned above. This time contestants are asked to pick a number between 0 and 1,000 (no decimals or fractions). The winner will be the one who is closest to 3/4 of the average entry with ties resolved by random draw.

The winner will receive a bottle of Dave's Insanity Sauce. I've found it most pleasing when added to a bowl of chili.

To enter the contest you must be a current subscriber to the Stingy News and email your choice of number, before February 14 2001, to:

Contest@stingyinvestor.com

Only one entry per person. Good luck!

Stingy Links

AOL Time Warner Deal Approved
Fortune's take on the AOL Time Warner deal. Lots of links here.

Cash, Stocks and Home Mortgages
Thinking about taking out a mortgage to buy stocks? This one's for you.

Financial Forum
Ok, it's a big mutual fund flog fest, but they usually have lots of free stuff. Be sure to check out Dan Hallett at the Sterling booth in Toronto.

The Callan Table of Investment Returns
A keen pdf file that shows which investment styles have outperformed recently.

Historical DJIA
A handy table that shows the changes to the DJIA since 1928.

Market Trivia

The trivia questions this week are:
  1. Which stocks in the TSE 60 have earnings yields higher than the yield on 10-year government bonds?
  2. How much emotional impact do losses have compared to gains of the same size.
  3. Do three-year outperforming stocks subsequently do better than three-year loosers?
The trivia questions and answers from last week are:
  1. Of the TSE 60 stocks that have beaten the market which has the highest dividend yield?
  2. Of the Dow stocks that have beaten the market which has the lowest P/E ratio?
  3. How many Canadian mutual funds vanish each year?
  1. Sherritt (S) at 6.3%
  2. Phillip Morris (MO) at 11.5
  3. About 5%.

Bullishly Yours,
Norman Rothery



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