Mining Fool's Gold

Grant McQueen and Steven Thorley

Financial Analysts Journal, 1999, vol. 55, issue 2, 61-72

Abstract: We discuss the popular Motley Fool's Foolish Four portfolio as a case study in data mining. We document the performance of the Foolish Four portfolio and use it to illustrate the mistaken inferences that can plague any investment research project. We describe the warning signs of data mining and discuss the antidotes to it—out-of-sample tests and the adjustment of returns for risk, transaction costs, and taxes. Finally, we document that the Foolish Four and Dow 10 trading rules have become popular enough to influence selected stock prices at the turn of the year.

Date: 1999
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DOI: 10.2469/faj.v55.n2.2261

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