I kicked up a bit of a storm on Monday with an article titled “Why you think there are more high StockRank profit warnings than there really are”. Yes, this year has been tough for many investors in the stock market. There have lots of profit warnings, a few accounting scandals, Greek executives doing a runner, Chinese companies vaporising and seemingly most of the speculative amp; blue sky AIM stocks being ground to dust. As I pointed out in my article, while the prevalence and ferocity of the ‘bad news days’ tends to cloud our perceptions, it actually hasn’t really been that bad a year for sensible investors. There have been solid gains for the kinds of stocks we favour at Stockopedia – good, cheap, improving companies have (on average) done very well.Understanding averages and probability is where many of us slip up. Ultimately the StockRanks are a stock selection system based on probability, and an understanding of probability is very useful to using them. So I thought I’d indulge in an investigation into ‘hit rates’ and basic probability.A trip to the races ?Most investors seem to treat the stock market a bit like going to the races….
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