Deconstructing the <I>Journal's</I> Dartboard

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SAN FRANCISCO -- We just can't help rooting for those darts.

We're talking about

The Wall Street Journal's

Investment Dartboard. Each month for the past decade, four investment pros have picked stocks they like and four

Journal

staffers have chosen stocks by throwing darts at a long list. Six months later, the paper compares the two groups' performance, which, in turn, are compared with the

Dow Jones Industrial Average

.

The gimmick took its inspiration from

Princeton

professor

Burton Malkiel's

argument in his classic,

A Random Walk Down Wall Street

, which said a monkey tossing darts at the financial pages could pick stocks as well as a highly paid professional.

"The idea was simple: A contest that would pit professional investors against the forces of chance. After all, many professionals recoil at any suggestion that investors can't beat the market," explained

Journal

reporter Georgette Jasen in an Oct. 7

Journal

article.

But in 100 contests, Jasen reported, the darts' picks returned 4.5% on average while the Dow rose 6.8%. Against the broadest of market indices, the

Wilshire 5000

, the darts fared even worse. In the 10 investment dartboard results published since Feb. 11, the pros' portfolio returned an average gain of 4.9%, the Dow grew an average of 4.2% and the Wilshire rose 5.5%. The darts portfolio lost an average of 6.4%.

The darts' underperformance persists even through bearish periods. During the six months ended Oct. 30, the pros lost 23.6%, the Dow lost 6.2%, and the Wilshire lost 5.4%. And the dart portfolio? It lost 21.5%.

Something about all this bugged us. You'd think the results of randomly selected stocks, over time, would reflect the broader market.

Part of the problem may be the sample size. It's only four stocks a month -- hardly enough to provide a representative sample of the broader market.

Or could it be the darts?

We turned to an expert -- Frank Baldwin -- catching up with him at

Molly Malone's

, a San Francisco hangout for dart enthusiasts. Baldwin doesn't know stocks from a hole in the wall, but he knows darts. He wrote the book on darts -- well, a novel anyway, called

Balling the Jack

. And his team won the

San Francisco Dart Association League Championship

two years running.

The novice thrower will aim for an imaginary bull's-eye, or dead center, Baldwin said. A competitive dart thrower aims for an imaginary 20, the spot just above the bull's-eye, because that's the highest scoring number on a dartboard. "You don't aim for the bull for scoring because it is so hard to hit, and if you don't hit it you could fall into any number," he said.

Also, the heavier the darts, the more control the thrower has. And the person who tacks the stock tables to the wall can manipulate the results, even unconsciously, Baldwin said. "If he is thinking he would like you to have

Microsoft

, he will put it in the middle," Baldwin said. "The potential for duplicity here is amazing."

But those stock symbols in the

Journal

are so teeny you practically have to hold the page to your nose just to read them. What's the chance of hitting one from seven feet away even if you aimed dead on? Doesn't matter, Baldwin said -- the positioning will give some stocks an ever-so-slight edge.

To approximate the returns of the stock market at large by tossing darts, the placement of the stocks on the wall would have to be totally random. How hard could that be?

Very, says Mike Orkin, mathematics professor at

California State University at Hayward

and author of

Can You Win? The Real Odds for Casino Gambling, Sports Betting and Lotteries

.

To make a random pick, Orkin says, you first have to scramble the stock symbols. Most programs that generate numbers use formulas that are good but not good enough to be random. "The world's leading experts spend huge amounts of time trying to generate random numbers," Orkin says. "It's a really hot and controversial topic among mathematicians." Random-number computer programs for sale are good for many things but not life-or-death research. "If you need to decide if a new anticancer drug works and need a random sampling for an experiment, you want to be more careful," Orkin says.

Yeah, but we're not talking about cancer here. We're talking about investing our net worth on a few throws of the darts. Would the results be random enough for that?

"Throwing darts is a bad idea," Orkin says. "People throw darts in patterns. There is too much variability according to who you are. Maybe your eye catches a stock subconsciously. You are introducing a bias. It does make a difference."

Says the

Journal's

Money & Investing editor Glynn Mapes: "We didn't put a whole lot of scientific thought into it. We just thought, darts."

To be sure, the

Wall Street Journal's

stab at randomness would hardly settle any mathematical disputes. The paper's publishing plant merges

NYSE

,

Nasdaq

and

Amex

listings, puts them in alphabetical order and sends them over in long, thin columns about the length of a newspaper page, says the

Journal's

Jasen. The columns are mixed up when they're posted on a spongy wall. Dart tossers are random staff members who happen to be walking by at that moment. They stand back about eight to 10 feet, sometimes closer.

"If someone is more comfortable being a little bit close to make sure they can hit the chart, that's OK," Jasen says. (According to Mapes, the stocks cover an area of about four feet high and six feet wide. How can someone not hit that?)

The darts don't always get their first choice of stocks, either. Any stock selected by either darts or pros must be worth least $2 a share and have a market capitalization in excess of $50 million, Jasen says. It must also have an average daily trading volume of at least $100,000. These requirements exclude such stocks as

Friendly's Ice Cream

(FRND)

and

Smith Corona

(SCCO) - Get Report

.

To prepare a control group, you need a lot of patience, math whiz Orkin says. "The best way is to put all the symbols in a box and shake it up and draw them out," he says. "The problem is, it takes so much time to cut up those little letters."

Darts champ Baldwin had a better idea. "I have found that drinking improves your

dart throwing accuracy to a point, then drastically reduces it," he says. "Once you cross the line, you can't hit anything you aim at."

In other words, the drunker you are, the more random your throws. Maybe that's what the

Journal

needs to perk up those dismal dart results.

WSJ

, a case of Bud is on the way. After all, we're rooting for the darts.

For more information on institutional holders of these stocks, as ell as financial statements and earnings estimates, please see the

Thomson Company Reports. For more information on darts, please see www.cyberdarts.com.