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Post# of 971
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lentinman

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lentinman

Re: None

Saturday, 12/15/2007 2:40:13 AM

Saturday, December 15, 2007 2:40:13 AM

Post# of 971
AVERAGE RETURN vs AVERAGE RANK:

I posted this at the end of PSL6 also.

Average return is a better measurement than average rank in most cases. For example, let's say Person A had +200% in the first PSL contest and the next closest was Person B at +50%. Now, let's say the next two contests were shown below: 
 
             Person A       Person B 
            Return Rank    Return Rank 
 Contest 1   200%    1       50%    2 
 Contest 2    45%    3       50%    2 
 Contest 3    45%    3       50%    2
If you use total return, Person A had an average return of 96.7%, while Person B had an average return of 50%. However, if you use rankings, Person A had an average rank of 2.33 compared to Person B's average rank of 2.00.

Clearly, IMO, average return is superior to average rank based on this example.

However, there is also a weakness in average return. Say, for example, that the Person C played only in Contest 1 and Contest 2, while Person D played in all three. Let's also say that the average return by all contestants in Contest 1 was 50%, the average return by all contestants in Contest 2 was 50%, but the average return by all contestants in Contest 3 was only 10% because the market had a major correction.

So, consider this possibility:
  
             Person C       Person D 
            Return Rank    Return Rank 
 Contest 1    70%    8       75%    6 
 Contest 2    70%    8       75%    6 
 Contest 3     -     -       30%    6
Using this example, Person C would have the higher return average (70% versus 60%), but a lower rank average of 8 versus 6.

Who is better? Well, IMO, clearly Person D is better. It wasn't because C was better that they missed Contest 3 and therefore, Person D should not be penalized.

So, there you have two perfect examples of why one is better than the other. Because of that, you can choose either one as your favorite method. I listed the top-40 in both.

Len

Warren Buffet: 5 minutes and 17 seconds of pure, unadulterated, bulletproof, flawless logic.



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