Replies to post #382 on Value Microcaps Pick Six Lotto 08 (PSL8)

[lentinman]

LF:

Well, if SSK doesn't beat me to it, I'll do an analysis of that supposition.

Len

[nsomniyak]

Certainly, increased sheepishness would tend to promote a smaller standard deviation, other things equal. For the non-statistician guys there, that can be translated to "mediocre performance by the most popular stocks will glom all the sheep together close to the mean".

However, it is not just stocks with concentrated followings--those same stocks need to be neither stellar nor stinkers for that argument to hold. If AYSI was up 40% we'd see a much bigger spread than we do now.

In very non-technical terms, this is called a "cluster flock". :)

[lentinman]

PSL8 SHEEPISHINESS:

Ok, I consider this very interesting.

Two parter:

1) It is true that the more sheepish a PSL, the higher the probability that the range between top and bottom will be less. That's just common sense. Taking it to the extreme, if everyone owned the exact same 6 stocks, the differential would be zero. Now, make one person have one stock different. The differential is no longer zero, but close. Etc.

So, the question becomes, is PSL8 more sheepish than normal. The short answer is yes. And, because of that, it could also be contributing to (an admittedly short time frame so far) smaller spread between the best and worst.

2) The easiest way to determine the sheepishness of a particular PSL is to divide the maximum number of possible sheep points by the number of participants in the contest. In the case of PSL8, the maximum number of points you could have gotten was 92. There are 80 contestants, so the ratio is 1.15.

Just to make sure you understand (whoever YOU is), the more contestants (on average) the higher the maximum sheep number. But, lower numbers of contestants can yield higher maximum sheep numbers IF they are more sheepish. So, you can't just take the maximum sheep number and look only at it. You have to take that number with respect (divide) to the number of contestants.

Below are all eight PSL's and the maximum possible number of sheep points, the number of contestants and the ratio. As you can see clearly PSL8 is way more sheepish than average. Only PSL1 was more so and it can easily be argued that back then we weren't anywhere near as diverse of a group. Couple that with the likelihood that many who participated simply read VMC for their picks. AND, it wasn't blind! So, it's not really a representative ratio.

The question to ask now, is why is PSL8 so sheepish? I would speculate that perhaps because of the horrible market, we have a similar situation to PSL1. Many posters simply took stocks that were common on the board because they were less willing to be looking for unique stocks in a market that they may not be invested in. But, that's just speculation.

                PSL8  PSL7  PSL6  PSL5  PSL4  PSL3  PSL2  PSL1 
 MAX SHEEP PTS    92    77    70    69    77    85    63    96 
 # CONTESTANTS    80    75    88    86    85    88    89    76 
 RATIO           1.15  1.03  .80   .80   .91   .97   .71   1.26 

Len