Category Archives: Research

In Social Media, Engagement Has Its Rewards

One of the most sought after answers in Social Media is whether or not engagement in social networks such as Twitter or Facebook directly correlates to customer acquisition, retention, and advocacy. Before we can earn customers however, we have to recognize that at any given time, there are also prospects. And, prospects require information and confidence in order to make decisions, in your favor of course. The answer to our question lies in social engagement.

Prospects are not only searching for guidance, comparisons, and experiences through Google, they are also becoming increasingly social in every step of a decision making process. If brands do not identify the various stages of choice and resolution and also the networks where they socialize and explore, opportunities will be missed.

If we’re not part of the decision making cycle, we are absent from decisions.

From Fans and Followers to Customers

In order to connect with prospects online, we must do so where they’re already active. New research reveals that doing so may have a strong effect on the decisions and activity of your customers. In February 2010, market research firm Chadwick Martin Bailey along with iModerate Research Technologies, surveyed over 1,500 individuals online as well as conducted one-on-one discussions to contextualize social media behavior.

The study found that an astounding 60% of individuals who “like” pages dedicated to brands on Facebook are more likely to recommend the brand than those unaware of the company’s presence within the network. Perhaps even more incredible, is that 79% of consumers who follow the brand on Twitter have stated that they too, would refer peers to those companies they follow.

Since actions speak louder than words, the study sought to answer the question of whether or not engagement actually leads to purchases. The answer is yes. An impressive 51% of Facebook fans and 67% of Twitter followers indicated that they are more likely to buy since connecting online. With 450 million users on Facebook and over 100 million registered users on Twitter, the potential is not only great, it’s exponential.

Social Media is a Tool for Customers and Prospects

What compels someone to fan a page on Facebook or follow a company on Twitter? The survey specifically asked the question of its panelists in relation to Facebook and Twitter and their answers may be surprising to many.

Facebook

On Facebook, existing customers topped the list with 49%. Following with 42%, consumers felt compelled to show support for the brand. In third with 40%, individuals admitted that they hoped to receive discounts and promotions.

Other stats worth mentioning, 27% and 26% of respondents stated that they would like to be among the first to know information about the brand and also to gain access to exclusive content respectively. And, 17% claimed that they were referred to the page by someone that they knew, which already demonstrates word of mouth at work.

Twitter

Twitter paints a different picture, but more so than in Facebook, consumers want access.

51% of consumers polled are already customers of the company. 44% stated that receiving discounts and promotions was the primary reason for following. 42% did so for entertainment purposes.

Gaining access to exclusive content and learning about information first with 37% and 36% respectively is also worth noting.

Whereas 17% were referred to Facebook pages, only 12% followed brands on a recommendation. However, as the number two reason for following reveals, Twitter users are ready to make a purchase based on information gleaned from their stream.

Engage or Die

Creating a presence in social networks is mandatory, but it’s also not enough. Actively and thoughtfully engaging consumers in social networks is quickly becoming an expectation. As part of the study, consumers voiced their opinions and sentiment, some of which serves as a wake-up call to businesses everywhere:

“It’s EXPECTED that a company have some digital face – whether it’s on FB or Twitter I don’t know – but they need a strong electronic presence or you doubt their relevance in today’s marketplace.” Female 50-54

“Either they are not interested in the demographic that frequents Facebook and Twitter or they are unaware of the opportunity to get more exposure in a more interactive method.” Male 35-39

“It shows they are not really with it or in tune with the new ways to communicate with customers.” Female 18-24.

“If they’re not on Facebook or Twitter, then they aren’t in touch with the ‘electronic’ people.” Female 55-59

It’s clear. Those brands that focus on prospects and customers through social engagement will open new doors that increase brand awareness and sales through word of mouth. But perhaps more importantly, businesses will also earn expanded relevance in the age of a new and powerful medium.

Connect with Brian Solis on Twitter, LinkedIn, Tumblr, Google Buzz, Facebook

Have you had a chance to read, Engage!…?


Get Putting the Public Back in Public Relations and The Conversation Prism:



Image Credit: Shutterstock

How investors make investment decisions

Before I start — please check out Tradestreaming.com — the site for my new book (launching soon).  Please sign up via email and/or RSS to stay plugged in to this conversation.  I’m going to begin migrating my blogging activities to that site as time unfurls (or furls, means the same). So it’s definitely important we stay in touch.

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I had a really interesting conversation today with a really smart entrepreneur (more on him in a later post) and it just got me thinking how retail investors make investment decisions.  I guess if you had to break down the process of decision making in pulling the buy/sell trigger, we  make our investment decisions in the following ways:

  • Simple screening: Like Yahoo Finance’s stock screener, these tools allow us to search for both basic and more advanced parameters/criteria to filter out candidates completely from the investment universe (in fact, they’re banished, never to be heard from again, until we conduct another screen).  Some quantitative investors rely solely upon the output of these filters (see Joel Greenblatt’s Magic Formula). Charting falls under this umbrella, too.
    • Pros: Allows investors to sort through mounds of data to extract value
    • Cons: Once screened out, stocks that don’t fit the criteria are forgotten about and stocks that make the grade are never compared to these by-products.
  • Lateral recommendations: Like Amazon’s “people who bought X also bought Y”, here investors are using research tools like Morningstar to pivot around a particular investment of choice to broaden their research to find something similar, but maybe better performing/less risky. I see this a lot in the interpersonal interaction on message boards where one know-it-all tells everyone “If you like this stock, why don’t you check out this stock.”  The point here is that there is a frame of reference and new research takes off from there.
    • Pros: Unlike buying a new phone, where a customer can describe accurately what he wants (”I want the iPhone”), many investors lack the language to describe what it is they are actually seeking in an investment and what tradeoffs they may incur in making such a decision (risk/return).  Lateral recs allow investors to make decisions by saying something to the effect: I want something like that.
    • Cons: Lateral recommendations are frequently compiled by using website activity and purchasing data and then working backwards to create a personalized rec.  The truth is, though, there is nothing personal about this suggestion.  It’s just data.  In fact, it can stray pretty far away from what a user really wants.
  • Piggyback investing: Investors buy things based on weighted opinions from others.  These recommendations can come from an article in Forbes to actually hard-core piggybacking hedge fund picks like the guys at AlphaClone are helping investors do.
    • Pros: Taken as individual suggestions, many of these picks do fine in terms of future performance.  In fact, building an entire portfolio of ideas like this and creating a portfolio of them grounded in historical performance can act as an investment strategy that’s as good as any out there.  This takes much of the decision making out of the hands of the investor — he merely needs to decide which guru to follow.
    • Cons: Piggyback output lacks any personalized context.  Because John Paulson is buying gold doesn’t mean that Ida and Murry should be buying it for their retirement portfolios.

I’m sure there are many other ways I’ve missed but these seem to be the way most investors I’ve been in contact make decisions to invest or pass on opportunities.  In fact, decisions aren’t made via only one route like I’ve listed above — it’s probably a hodgepodge of ways.  Each one of these directions has problems associated with them and when technology is used to help solve these problems, new issues arise that have to do with the structure of the software thrown at the problem.

Please join me in asking WHY YAHOO FINANCE HASN”T REALLY CHANGED IN 10 YEARS?!  C’mon — with all the smart people we’ve got in the industry, investors deserve more.


Pass(ing)over profits in 2010: Giving thanks to the top investment bloggers

As the Jewish holiday of Passover is just around the corner, I wanted to use this space to give thanks to those bloggers who have been providing their readers with bongo profits so far 2009-2010.

From SharonaGott on Flickr Creative Commons

From SharonaGott on Flickr Creative Commons

FYI: I don’t hold any of these picks (unfortunately), nor should this be construed as a recommendation.  Learn from these guys and do your own work.

I’ve also chosen to write about these sluggers in the form of Dayenu, the traditional Jewish poem recited at the Seder (work with me here…).

Pass(ing)over profits for 2010

If Todd Sullivan had just provided the best coverage of General Growth Properties ($GGP)…it would have been enough (Dayenu).

BUT, he also had a sweet, juicy call on Jamba ($JMBA)….it would have been enough (Dayenu).

If Eddy Effelbein had just had a really good 2009…it would have been enough (Dayenu).

But, he’s knocking it out of the park in 2010 with a call on Moog ($MOG-A)…it would have been enough (Dayenu).

If James Altucher hadn’t given readers of the Stockpickr a prescient buy recommendation on STEC ($STEC) around Thanksgiving, 2009…it would have been enough (Dayenu).

But, he also gave us the secret sauce when he revealed the top 10 things he learned while trading for investment guru, Victor Niederhoffer…it would have been enough (Dayenu).

If the guys at the Davian Letter hadn’t put up such big numbers with their trading alerts…it would have been enough (Dayenu).

But Dasan really nailed his Palm ($PALM) short…it would have been enough (Dayenu).

If Paul Price hadn’t just provided the best coverage for long term investors on how to use options… it would have been enough (Dayenu).

But, he also nailed it on Perrigo ($PRGO)…it would have been enough (Dayenu).

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There is so much great stock picking going on online, what were some of your great calls so far this year?  Know anyone else who’s got the trading mojo right now?

Let us know in the comments.

Here are some other places (all on Seeking Alpha) to look to see how some of the best and brightest are faring this year:

–>> If you liked this article (or anything I’ve written), please sign up for free subscriptions to get updates in real-time here.


New study shows stanky returns for S&P over last 50 years

David Bianco, chief U.S. stock strategist at Bank America Merrill Lynch, suggests that the investors made far less in the past 50 years than the S&P 500 suggests, as quoted in Bloomberg.

While the S&P 500 returned an average of 9.5 percent annually for the 50-year period, the comparable figure after all the adjustments [ed. trading and management costs, dividend and capital-gain taxes, and inflation] was a mere 1.3 percent, according to Bianco’s calculations. Both averages are geometric, a multiplication- based method often used to calculate average returns.

So, what to make of all these surprisingly meager returns?

Well, Bianco himself says that this signals that now would be a good time to buy U.S. stocks and that stocks, given that inflation and trading costs are low on a historical basis, justify a higher premium to the market.  He thinks the market has about 11% higher to run.

Whether Bianco’s numbers are right, what’s interesting to me — and for readers of this blog — is the potential connection between decrease in trading costs and future returns.  Low commissions, tons of free content online, crowdsourcing, screening, piggyback investing, and trade mirroring — all these essentials of the New Rules of Investing (and part of my upcoming book) are part of this process.


Online Finance Wishlist: Can you show a brother some love?

So much progress has been made in online finance, but man,  we still have so much more to do! While the amount of investing information has exploded online, there are still major gaps in many of the top sites that seem like no-brainers to fix.

The following list — submitted to me over the past 12 months by investors using online financial research tools — is just a smattering of some of the low hanging fruit that the largest investment sites can improve upon:

  • General lack of ETF information: With the (strange) takedown of ETFConnect last year, how come so little information about ETFs is available for free on the major finance portals?  Google Finance (example) and AOL’s DailyFinance (example) — ETFs appear to be an afterthought.  I’m thinking we need some of the same info XTF provides through SeekingAlpha (example): things like tracking errors and expense ratios are the most basic.
  • Long live live quotes: Without beating a dead horse, if you have free live quotes on sites like Yahoo Finance, why would you bother to display delayed quotes as well (example)?  That’s like having your GPS set 15 minutes ago.  Why, Yahoo Finance, do you continue to display the delayed quotes so prominently??
  • Google Finance ‘news’: You call that news? I am a fan of Google Finance but the news module on the site’s quote pages (example) is far from adequate.  I use Google Finance for quotes and charting and then literally have to leave the site to go find a recent press release on another site.
  • MarketWatch quote page trainwreck: Can you say trainwreck on MarketWatch’s quote pages (example)? While the site used to be a must-read most mornings, it feels like the Dow Jones/News Corp site has lost much of its relevancy over the past 1-2 years.
  • DailyFinance stuffed to the gills:  Everything you could possible want (and more) on AOL Money’s new incarnation, but where the hell is it (example)?  Trying to research stocks on Daily Finance is like trying to find Waldo.  That said, kudos to the team for their recent launch of a serious competitor.  I predicted the nice, new site will be a worthy contender in 2010.

Do you have a wishlist?  Pet peeves?  Let me know in the comments below.


Smallcap performance: does size matter?

Long standing conventional wisdom has it that small caps exhibit a “size-effect” — they tend to outperform larger stocks in general over the long term.

MarketSci has done some great work digging in to why this is the case in a recent article. According to the post:

I break from conventional wisdom on the subject of the “size effect”, or the tendency for small-cap stocks to outperform large caps over the long-term.

Some negligible small cap hoodoo might exist, but it pales in comparison to what really drives this Wall Street mantra: a “volatility (beta) effect”.

By isolating certain effects, the financial blogger shows that the tendency for small caps to go up (and down) more than their larger cap brethren is due mostly to the fact that they are more volatile.  It’s essentially their beta that contributes to this performance.  Put another way:

Because small-caps are pretty well correlated to large-caps but about 30% more volatile, when the market goes up they tend to go up more (and vice-versa). So because of the general upward bias of the market, small-caps have naturally tended to outperform large caps. That’s NOT a size effect, that’s a volatility/beta effect.

OK, fine.  Does it matter?  Well, kinda.  In practice, if investors like to include exposure to small cap stocks in their portfolios to capture the size effect, they’re still going to get small cap performance — it just may not be as big as they may think it is and may not be due to the size of the companies they’re investing in.

If volatility is the culprit, they could theoretically do just as well by investing in larger cap, more volatile (tech?) stocks.


The CME Industrial Index? CME in the lead to buy Dow Jones Indexes

The WSJ reported that the CME Group appears to be the leading contender to purchase the News Corp. stock-index business.  Acquired as part of News Corp.’s $5.2 billion purchase of Dow Jones in 2007, this is the same business that owns the Dow Jones Industrial Average.

The WSJ reports that talks stalled after Dow Jones asked for a higher price, close to $700 million.

Bloomberg reports that this could be a good opportunity for MSCI to position itself to make the purchase.  MSCI has been rumored to be more than sniffing around the RiskMetrics group, which according to BusinessWeek, recently put itself on the acquisition block.

The index business contributed about $90 million to the top line for the Down Jones unit.  Dow Jones runs more than 130,000 equity indices.

What’s interesting here is that the CME Group, operator of the Chicago Mercantile Exchange, may be making its way into the index business.  According to the WSJ:

A purchase would be a new step for the CME, which operates the Chicago Mercantile Exchange, and has a strong position in commodities, futures and options trading.

Dunno, but I don’t think investors could really get juiced over the new ‘CMEIA’ — the Chicago Mercantile Exchange Industrial Average.  It’s a mouthful.


Mark Drapeau’s New Job: Corporate Public Diplomacy via Innovative Social Engagement

Champagne and Dreams Tweetup, Ava Lounge, Dream Hotel - Mark Drapeau

Guest post by Mark Drapeau

For a good part of my career, I was a scientist researching how animal behavior is controlled by genes and neurons. Desiring something more, I got a terrific fellowship from the scientific society AAAS in 2006 and was able to conduct science and technology policy research at the Department of Defense for a few years. That experience opened my eyes to everything from the inner workings of the military, to how the government purchases goods and services, to how social technology is changing how the government conducts its operations.

Since I left the Defense Department a few months ago, I’ve been doing a lot of thinking, reading, and writing, teaching a class at The George Washington University about what could be called “entrepreneurial journalism,” and consulting some private sector clients about how emerging technologies are changing and democratizing media, marketing, and other specialties. I’ve gone fairly far afield from watching fruit flies have sex, but what the hell – It’s as good a background as any, and it shows I have education, patience, and a certain sense of self-loathing (wink).

But many people have asked me what my next “big move” was going to be. Today, I am happy to announce that I will be joining Microsoft as Director of Innovative Social Engagement for the company’s U.S. Public Sector division, based in Washington, DC. I’ll be part of its new Applied Innovations Team that has a recently appointed Director of Innovation, who in reports to the division’s Vice President. The organization is responsible for Microsoft business across federal and state & local government; higher education and K-12 markets, as well as a significant portion of the U.S. healthcare market.

So what does that long job title of mine ultimately mean? What’s the overall goal of this newly-created position? I think of it as “public diplomacy” for a corporate unit. This role differs in many ways from traditional public relations or public affairs, which despite a recent influx of new technologies still mainly involves “providing information for the public” at its core. Corporate public diplomacy, on the other hand, involves actively shaping the communications environment within which corporate activities are performed, and reducing the degree to which misperceptions complicate relations between the company and its customers. In my view, this complex mission is conducted using what I call innovative social engagement.

What’s Innovative Social Engagement?

Let me tell you what it is not, first. After observing many people whose jobs variously involve public relations, marketing, communications, advertising, technology, sales, and being digital natives, let me reveal the “anti-vision” for my new position:

* It’s not merely leveraging my personal brand to promote a corporate brand, though that’s part of it.

* It’s not merely using social media platforms to connect with audiences in the public sector, though that’s part of it.

* It’s not merely making social connections with influential people in real life, though that’s part of it.

* It’s not merely engaging people complaining about the company online and conducting after-the-fact customer service, though that’s part of it.

* It’s not merely creating public relations events to get people’s attention, though that’s part of it.

* It’s not merely developing word-of-mouth marketing campaigns or helping the company go against type and poke fun at itself, though that’s part of it.

* It’s not merely chasing the coolest, latest trends and incorporating them into strategies, nor reviewing cutting-edge tech gadgetry, though that’s part of it.

* It’s not merely reporting live from events nor interviewing people inside the company on video (something like what Robert Scoble famously did for Microsoft), though that’s part of it.

* It’s not merely being a product evangelist, though that’s part of it.

* It’s not merely measuring the effect of online communications on customers, though that’s part of it.

* It’s not merely creating a blog and writing about the best ideas or latest news or providing the most value to the most people, though that’s part of it.

* It’s not merely creating new online opportunities for product sales, though that’s part of it.

My vision of corporate public diplomacy via innovative social engagement includes many if not all of these things, but it is not simply one or a few of these things. My charges include creating lasting and meaningful experiences for audiences, engaging willing participants in my work-related social activities, creating emotional responses with Microsoft brands of relevance to the public sector, transcending brand expectations to add value to people’s lives, and generally being remarkable (in the vein of Seth Godin) to specific people I desire to engage with and even influence.

Returning to the notion of conducting corporate public diplomacy via innovative social engagement, I think that the U.S. State Department’s new Democracy Video Challenge is an excellent example of the multi-faceted, engaging, and remarkable storytelling and influencing that can be accomplished with clear goals, true strategic thinking, and a holistic view of the suite of available tactics and opportunities. As the movement of Government 2.0 progresses, I think that I’ll be able to learn a lot from the best practices in it. In return they will learn from me and likeminded people working at commercial organizations, NGOs, and any other entities engaged in public sector and public service activities.

So What Will I Actually Be Doing?

Someone who is charged with directing innovative social engagement for an entity needs to be visible, agile, adaptable, innovative, social, engaging, passionate, empathetic, fun, and disruptive. They should be pervasive or restricted, overt or subtle, traveling or stationary, and leading or listening as a given situation calls for. They must be a master storyteller, understanding what performance they need to give, what actual or digital stage they’re performing on, and what audience is in the house to watch them.

In my new position with Microsoft U.S. Public Sector (MSPS), I’ll play the role of storyteller. I won’t just be using MarkDrapeau.com, and I won’t just be using Microsoft.com either. I won’t just be blogging on my own or other platforms, I won’t just be tweeting and using social networks, and I won’t just be planning events in DC and across the country. I won’t just discuss Microsoft technology, and I won’t even just discuss technology. Rather, in something akin to a “think-and-do tank” role, I’ll be creating and promoting a fresh, innovative way of thinking about engaging different audiences with corporate and personal storytelling – and then I’ll be acting on many of my own ideas, too. I’ll also largely be maintaining my autonomy to write a personal blog and conduct other activities that benefit larger communities, and I’ll have explicit permission to talk not just about Microsoft but also about other companies and products, and use them too. I may even try to “monetize the hate” à la blogger Heather “dooce” Armstrong.

More specifically, I’ll be doing at least seven things immediately: (1) Interacting with and socially empowering the other members of the seven-person Applied Innovations Team; (2) Discussing my opinions about science and technology in the public sector and continuing to be a thought leader there; (3) Experimenting with new pre-sale information and social technology, often beta or free products that potentially have a public sector role; (4) Showing the human side of MSPS and engaging audiences through multimedia channel content production and other online activities; (5) Participating actively in the public sector communities of government, education, and healthcare; (6) Measuring and understanding public sentiment about MSPS using innovative techniques; (7) Acting as a competent resource for senior Microsoft decision makers, corporate partners, and customers, and public sector decision makers.

The Bottom Line

I’m not a fanatic. I don’t think that Microsoft makes all the right products, develops all the best solutions, or generates all the most awesome innovations. And I refuse to pretend that I do. But while I think they do in fact do a lot of that, I don’t think they always relate those facts well to their active or potential customers. What currently has me excited is the opportunity to act as “The Official Taste Tester of the Microsoft Kool-Aid” (as one employee put it), and tell the MSPS story to people using innovative methods. Simultaneously, I also hope to create a new model for how brands engage their various constituent communities. Finally, I plan to continue being both cheeky and geeky in 2010, which many people seemed to like in 2009.

That’s a lot to be responsible for, and I’m admittedly taking on a big personal and professional challenge. But that’s why I’m doing it. If it were straightforward and easy, I’d already be bored.

Bloomberg finds piggybacking analysts sucks

John Dorfman, investor and Bloomberg columnist, has been following the 4 most popular and hated stocks among Wall Street analysts for the past 11 years.

According to Dorfman’s research:

For 11 of the past 12 years, I have studied the performance of analysts’ four favorite stocks, and the fate of the four they most scorned…Their favorites, on average, were flat during those years while the four stocks they hated most gained about 6 percent annually. The Standard & Poor’s 500 Index had an average gain of about 9 percent.

Wall Street Stinks

winners-and-losers1Dorfman attributes this bad performance to the fact that analysts are “not all-knowing” and like most human beings,  “extrapolate the recent past as a guide to what comes next.” Check out the whole article to see which 4 stocks are currently most highly rated by security analysts and which 4 are currently the pariahs.

Dorfman concludes with a short review of each of the stocks.  I’d like to delve just a bit deeper here, though.  There is definitely a divergence in Wall Street’s sell side and Stamford’s buy side in the ability to accurately pick stocks.

Buy side vs. sell side: winners vs. losers

Whereas research like Dorfman’s show an inverse relationship of the best ideas in the sell-side community to stock performance, research like Cohen, Polk, and Silli’s “Best Ideas“  and Martin and Puthenpurackal’s “Imitation is the Sincerest Form of Flattery” indicate that investors have a lot to gain by piggybacking the best ideas and cloning guru investor portfolios.

So, why is Wall Street, which is just as smart IQ-wise as the buy-side, so bad at picking stocks?  I just don’t think Dorfman’s “they’re just human” critique is sufficient because buy-side guys are human, too.  In fact, I’d wager that the majority of good buy-side analysts cut their teeth on the sell-side.  Does moving to Connecticut improve stock selection (like to see that research paper)?

Companies like AlphaClone are entirely focused on helping investors exploit the alpha produced by certain professional investors (see my AlphaClone: The cure for investor insanity).  Why the divergence?

Rather, there are structural reasons why piggybacking the buy-side works, while aping the sell-side doesn’t.  Some possible reasons for this underperformance:

  • Wall Street analysts are reactive, not nimble enough with changes in ratings to make investors money on the way up or down
  • industry coverage structure requires that each analysts has to have some buys and some sells in an environment that a good portfolio manager may completely avoid such a sector
  • unlike popular folk wisdom, good companies don’t make good stocks and vice versa.
  • Analysts are trained like MBAs to take a more organic, longer term view on companies while the market continues to focus on shorter milestones

Thoughts?  Let me know in the comments below.

[Hat tip: My Investing Notebook]


Testosterone, EMH, and Sharpe Ratios

Reuters is out with an article entitled Hormones, incentive, experience make best traders.  The article reviewed a recent study entitled A Note on Trader Sharpe Ratio by John Coates, a Cambridge research fellow in neuroscience who previously worked on Wall Street.

The study analyzed the effects of hormones and experience on the trading performance of 53 English traders averaging 29 years old.  These prop traders are incentivized not with monetary bonuses, but with year-end stock gifts based on their performance.  Importantly, the study uses the Sharpe Ratio as a measure of risk-adjusted performance over time.

Couple of takeaways from the article:

  • Another stab at EMH: By looking at the effects of work experience Sharpe and Experienceand performance, as measured by the Sharpe Ratio, the study marks another reference point at the weakness of the Efficient Market Hypothesis to account for consistent, market-beating gains.  The researchers compared traders’ Sharpe ratios with the Sharpe ratio of the DAX German stock market index and found that more experienced traders scored significantly higher — an average of 1.02 compared with the Dax’s average 0.53.
  • Practice makes profits: The study found that Sharpe Ratios actually went up over time which signifies that traders were getting better at managing risk and squeezing out returns.  According to the study: “Our data thus suggest that Sharpe Ratios increase over time because traders learn to make more money per unit of risk they take.”
  • Hormones and trading: Whether self-selected or improved via biology,   testosterone plays an important part in the work of financial traders, with evidence that male traders will make much more aggressive trades on days when their testosterone is high.  According to the study, successful traders “are more profitable and survive longer in the markets, as was previously reported, but we now find the effect is largely mediated through a higher tolerance for risk”.

In the words of its co-author, this study demonstrates that “in trading, as in sports, biology needs the guiding hand of experience.”  It’s an interesting look at the interaction of experience, biology, and investment outperformance.