Bullish Percent and Your Money
Get a better understanding of the “bullish percent” concept from “Who Wants To Be A Millionaire.”
You remember the premise of the “Who Wants to Be a Millionaire” show? Contestants come on and answer trivia questions with the value of each question growing until they reach the final, million-dollar question. If the contestant answers a question incorrectly they are eliminated.
To make things more interesting, the show gives each contestant three “lifelines”. The lifelines are to help the contestants out if a particular question has them stumped.
- One lifeline takes away two of the four answers leaving the contestant with a 50-50 chance of guessing the correct answer.
- Another lifeline allows a contestant to phone a friend and see if they know the answer.
- The third lifeline is a poll of the audience. This allows the audience to guess the right answer and then the computer displays what percentage of the audience voted for each answer.
A study found that when a contestant phones a friend for an answer, the friend is right about 2/3 of the time.
However, when the audience is polled, the audience is correct 90% of the time.
Your super smart friend is right less then polling the audience of people who have nothing better to do than sit in a studio audience at 3:00 in the afternoon!
The apparent conclusion is that you are more likely to see the right answer from a question–you’re better off asking a big, diverse group, rather than one or two experts.
The miracle of markets is that a hundred million ordinary people, just by going about their daily business, end up allocating resources much more efficiently than would five guys talking on TV, no matter how smart those five guys are.
I view the bullish percent concept as “polling the audience” in the Millionaire show while the most often quoted market indices take the “phone a friend” tactic.
The audience members get it right more often than the phone a friend and that is what I see with the bullish percents–they are better at assessing risk in the market than the indices.
Each day when the bullish percents are calculated we are in essence “polling the audience”…this audience happens to be the NYSE or OTC stocks…this audience of about 3000 for each market is better at assessing risk than the top twenty capitalized stocks in the S&P 500, the Dow Jones 30 Industrials or the NASDAQ 100.
Remember, the bigger the sample size the more accurate a picture you get…each day we ask the stocks comprising the NYSE or OTC what is the correct level of the bullish percent.
