I have been in a rut lately. I have been having trouble finding stocks I can get excited about. Looking for ideas I turned to the 'Alpha Rich' section of Seeking Alpha. These are the articles picked by the Seeking Alpha editors as those with the most thorough and compelling arguments for the performance of stocks.
Obviously picking individual stocks is a difficult task. Though the arguments laid out in the articles are compelling, this does not guarantee the future performance of a stock. The editors of seeking alpha who select these articles are no doubt experts, however, every fund manager is also an expert and they don't always beat the S&P 500. Therefore blindly following the picks of the Alpha Rich articles is no guarantee of success.
Picking stocks is obviously hard, so are Alpha Rich articles really of any more value than the average opinion? I was wondering this myself and decided to do an analysis to find out.
On May 20th 2013 Seeking Alpha changed the criteria structure for Alpha Rich articles resulting in as many as five Alpha Rich articles per day being posted on Seeking Alpha. These articles are exclusive to Seeking Alpha Pro subscribers for 24 hours once they are published before being made public. Under the old requirements for Alpha Rich articles there were only one or two Alpha Rich articles per week.
So I did an analysis of the first month of Alpha Rich articles under these new requirements to determine both for myself and for anyone who reads this whether it is worth their time and money to trust Alpha Rich opinions.
I chose to review only the bullish picks as they greatly outnumber the short picks and I believe are more relevant to the average investor. I also chose only to review the first month of articles after the new requirements were introduced to ensure the results weren't skewed by more recent articles where the investments had not had any opportunity to mature.
The date listed for the articles are the day they were made public, this means they were available one day earlier to SA Pro subscribers. The initial price listed for each stock is the closing price of the stock from the day before the article became public. The current price was the closing price on the day of writing (9/24/13).
Here are the results:
|Symbol||Article Date||Initial Price||Current Price||% Return|
Out of 64 total stock picks 46 of them have made positive returns since their articles were published a few months ago.
The average return of these stocks has been 11.87% over 3-4 months. This easily beats the 3.86% return of the S&P 500 over the same time period. This S&P return was calculated by averaging the closing price of the S&P 500 over the period when the articles were posted and comparing that value to the closing price on 9/24/13. This means your return would be 3.68% if you bought an equal amount of the S&P each day during the period these articles were posted and held it until now.
Looking more closely at these results makes them even more compelling. Not only are the picks making predominantly positive returns, the biggest gainers have made much more than the biggest losers have lost. There are 12 stocks that have returned more than 30.5%, this is the amount the biggest loser has lost. This is evidence of truth to the claim that Alpha Rich articles provide significant risk/reward disparity.
The conclusion we can draw from these results is that, despite the new requirements allowing more articles to be labeled 'Alpha Rich,' it is very much worth the time and effort to pay close attention the stock picks in the Alpha Rich section. Of course it is important to remember to always do your due diligence, but the picks in Alpha Rich articles appear to be a good place to start.