Would you invest $10,000 in a portfolio configured by thousands of strangers researching stocks on Google Finance? Few reasonable people would, but had you done so on January 3rd, 2007, you could have had an extra $4,500 to spend by New Year’s Eve. But this would have been a risky investment compared to those based on other Financial Search Engines (FSEs).
Last summer, we segmented stock searchers by their FSEs of choice. In July we noted that Market Watch users displayed more interest in riskier, conservatively-valued stocks than other users. Now, with aggregated FSE data for 2007, we can determine whether these patterns continued throughout the year.
Suppose that on January 3rd, 2007, we gave $10,000 to "portfolio managers" representing each FSE. We instructed them to invest this money proportionally in their ten most heavily searched stocks, assuming a buy and hold strategy for the year. Since an average of 16,000 searchers looked-up Apple on CNN Money each month, Apple comprised 12.8% of CNN’s "portfolio," or $1,280. That would have bought about 15 shares of Apple that day.
Now, in January 2008, we can see how each portfolio performed:
- The Google Finance portfolio was the most unique, most profitable and the most volatile, growing 45% for the year. Google and Apple dominated this portfolio. It also included the Chinese search engine Baidu.com, which grew 146% for 2007.
- Compared to Google, the Market Watch portfolio grew 30% for the year but was only 5% less volatile.
- The Yahoo! Finance portfolio comprised 65% of All 2007 Searchers, but came in third in growth on high volatility. Ironically, it was the outlier of the lot.
- CNN Money and MSN Money were the most evenly distributed "portfolios" and thus had correspondingly lower growth and lower volatility.
These "portfolios," configured as they were, had high growth but came with significant risk. However, with the benefit of hindsight, the stocks within them, namely Apple, Exxon, Intel, eBay, UPS, and Wal-Mart could have made-up a sensible investment. Optimally configured, we could have seen growth of 29% with a beta coefficient as low as 0.56 against the S&P. We will begin tracking these FSE portfolios on a monthly basis in 2008 and update with how you could be doing.
Check out an updated version of this post for early 2008 here.