Is AlexaDex a Useful Stock-Picking Tool Or Just A Fun Game?
Yesterday I received an email from Colin Saunders about a game he's invented called AlexaDex. Unlike most unsolicited email, this one was worth reading.
Here's how AlexaDex works: Each player begins with $10,000 of game money, and then buys and sells URLs. The price of URLs is set by their traffic, as determined by Amazon's search engine and stats tracker Alexa. AlexaDex uses Amazon's web services to pull the data. (It's good to be able to write something positive about Amazon's web services after the skepticism I expressed about Amazon's outsourced search.) The goal is to generate the most profit by correctly predicting which web sites will do well, and thus which URLs will rise in value.
Now, the game is really fun. But could it also be a good predictor of stock prices? Since you can view the portfolios of consistent winners, the game may contain information that could help you pick 'Net stocks.
But there's one glitch. Prices are set by current traffic data, not by supply and demand. So, unlike the stock market, prices don't reflect future expectations. That means you can win the game by buying URLs of e-commerce companies, for example, just before the (entirely predictable) Q4 seasonal increase in traffic, and selling them before the Q1 seasonal decline. So smart players can game the game, and that reduces the value of the information generated. The key factor that any hedge fund analyst will ask about a stock -- What future expectations are priced in? -- is missing.
Where the game may still have value is in insider information. Since insiders can buy "stock" in their own URLs, unusual activity in non-seasonal URLs may contain valuable information. For example, I just bought ALL the available stock in the Consumer Electronics Stock Blog...
Have a great weekend playing!
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