Nov

27

First let me preface my post by emphasizing that I am only posting this model because the analogy presented below ceased to exist within the sector (Canadian Banking Sector) subject of this model. I still believe that the model can provide a meal for lifetime with some modification and/or refinement. In this very simplistic model, I assume that all the Jockeys (CEOs) on top of the horses (Canadian Banking Stocks) are of similar skill set and reputation in the street (which in this case they actually are), I also assume that all the horses are of similar quality (the Bank Stocks are of equal fundamental quality, an assumption I make due to my inability to dig into fundamentals and pick favorites); and I also assume that every month is a different race.

In other words, Jan 1st to Jan 31st is the first race, Feb 1st to Feb 28th second race, etc…

A different model might want to consider Jan 1st to Sept 30th as the 1st race and Oct 1st to Oct 31st as the second since mutual funds report results then and since they own the biggest chunk of the sector under consideration. Another variation might regard the 12 months as one long race and each month as one lap in a 12 lap race and so forth.

For example, in the table below, at the end of January, BMO (Bank of Montreal) was the winner, followed by RY (Royal Bank) and so forth.

CM (Canadian Imperial Bank Of Commerce) was at the bottom of the list. Notice how the slacker for the first 5 races (CM) ended the year taking the lead.

My theory, playing on psychological biases and incentive is that given equal horses of same weight, speed, history, etc, the 2 jockeys with the most incentive to compete in a given race are the second horse that was so close to winning the previous race and the horse that came last since coming last race after race will cut into the jockey’s bonus that’s very highly correlated to where his pony ended in the overall race.

but, that needs to be tested …

This is how my racing form usually looks:

January - February bmo ry td bns na cm
February - March td ry na bmo bns cm
March - April ry td na bmo bns cm
April - May ry td na bns bmo cm
May - June ry na bns td bmo cm
June - July ry bns cm bmo td na
July - August ry bmo bns cm td na
August - September ry bmo td cm bns na
September - October ry bmo cm td bns na
             
Year to Date cm ry bns td na bmo
1 month na bns ry cm td bmo
3 months cm bns bmo ry td na
6 months bns ry bmo cm td na
1 year ry cm bmo bns td na

.


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