This is the time of the year that our best stock pickers put on their riding boots and change track to apply their skills at predicting the winner of the Melbourne Cup. I’m not saying that picking stocks is much like picking horses, although smart punters from both fields know the importance of statistics when it comes to picking champs. This year, the analysts at Macquarie Group Ltd (ASX: MQG) have thrown in a bit of share market thematic as they try to read the tea leaves and the horses that the broker believes have the best chance of taking…
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This is the time of the year that our best stock pickers put on their riding boots and change track to apply their skills at predicting the winner of the Melbourne Cup.
I’m not saying that picking stocks is much like picking horses, although smart punters from both fields know the importance of statistics when it comes to picking champs.
This year, the analysts at Macquarie Group Ltd (ASX: MQG) have thrown in a bit of share market thematic as they try to read the tea leaves and the horses that the broker believes have the best chance of taking home the cup this arvo are Best Solution, Avilius, Marmelo, Youngstar, Magic Circle and A Prince of Arran.
“Each year we look to the market to guide us, making slight tweaks to our model to boost (hopefully) our chance of success,” said Macquarie’s quant team.
“October was a volatile month for investors with large caps and defensives the best performing segments of the market. With US midterm elections also overlapping this year’s Melbourne Cup there is little chance volatility will subside.”
On that note, Macquarie favours horses that are deemed to be lower risk and are shorter-priced runners.
Just as investors look at management track records to determine if the company has what it takes to overcome a volatile trading period, horses that have outperformed in conditions similar to race day are the ones the broker favours.
It’s currently wet and humid at trackside and there’s a 50-50 chance of rain when the Melbourne Cup kicks off at 3pm today.
“We look for horses that have competed over the distance and had a recent win in Australia,” said Macquarie.
“Weather looks like it may also play a role and we appropriately include a metric here.”
When the broker jumbles all these factors into their quant model (a program that crunches data deemed to be significant like horses age, barrier and number of wins) the horse that came out on top is Best Solution.
“Our preferred strategy is one that places a bet on the top horses in our model. We also aim for the trifecta using the top quartile of horses,” added Macquarie.
“This best mirrors the way Quantitative strategies are applied to equity investing and can be implemented using a ‘box trifecta’ (see your local bookie for a description of this bet).”
But don’t be fooled into thinking that picking horses is the same as investing in stocks. There are more differences than similarities although it’s always good fun when you strike a winner in either categories.
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Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited (but doesn't own any horses). The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.