I like this idea, especially because it can be generalized to all the risk-based decisions we make in everyday life. It also draws on our critical functions, rather than the same optimistic functions that we use to post facto rationalize our decisions.
There’s plenty of research showing that professional stock fund managers do worse than the indexes over time. In other words, consistently picking winners is impossible except by chance or illegal means. But I wonder if picking losers is easier?
Suppose you built an index fund by starting with the largest 500 stocks in the United States, based on capitalization, then removing the fifty or so stocks that experts predict will be dogs for the coming year or so. Would your remaining 450 stocks beat the S&P 500 index?
Winning by Picking Losers
It’s a conjecture that’d be very easy to test in a laboratory setting. If I do end up back in college, this would make for an excellent senior project (I’d be studying statistics/actuary science).