Last week we shared some insights into what the most active students on the platform have been trading. This week we would like to highlight a few of the students who have already set themselves apart with their performance.
To find these top performers, we looked at Profitability Z-scores. These are directly comparable to Sharpe Ratios and RAAs but are based on how many of each student’s trades were alpha positive and how many were alpha-negative – rather than what aggregate portfolio performance has been.
Here is the distribution we saw:
When one of these “outliers” takes a position, the probability of that position generating positive alpha is far higher than pure luck can explain.
To help you get a sense for how these students go about picking their investments, we would like to highlight two groups of stocks. The first is made up of the most actively traded names on the platform – which these students chose not to trade:
AAPL, BABA, GOOG, GPRO, NFLX
The second group consists of stocks which are not popular among average Challenge participants, but have been traded by multiple “outlier” students:
CVX, DRYS, GE, HD, XOM
You might notice that the first group consists of highly hyped stocks – and the second looks downright boring. This is an excellent illustration of why you should tune out the hype when deciding where to invest; as Buffett has said, failure to do so will more often than not cause you to “pay a heavy price for meaningless reassurance.”