I don't think I need to go into a big explanation on this one. The single best thing that could be done to prevent gaming of the caps system is to add a volume requirement to the pickability thresholds. This would eliminate a lot of .ob and .pk stock picks right away. If you're a caps gamer, you know that you can bank accuracy and points simply by continually picking very illiquid stocks -- If a stock has a bid/ask of $1.70/$1.85 and it trades 100 shares at $1.85, redthumb it and wait until it trades at the bid of $1.70 to close it. And then greenthumb it and wait until someone buys 100 shares at $1.85 to close it again. Lather, rinse, repeat. This has zero actual investing value with real money, course, so it should not be part of the caps game. [more]
This is a repost of a blog I did a while back. Just wait until gas goes to $5. It's going to change America's way of life.
Inflation is a good sign!
1) Don't ignore capex - When you analyze a stock, it is critical that you look at more than the income statement. You need to understand the balance sheet and the cash flow statement as well. In particular, don't ever ignore capital expenditures. Imagine that you are a CFO and anything that you are able to classify as capex will be "hidden" from the income statement. Isn't it just possible that this incentive leads to some liberal classification of expenses as capex? Those expenses only hit your income statement over the next many years, amortized as depreciation. Let's take one of my favorite redthumbs as an example -- MCRI, a rinky-dink casino operator. The company is projected to earn 30 cents this year and the stock trades at $9.90, which gives it a forward p/e of 33x. Pretty rich for a company with shrinking revenue, don't ya think? But wait... there's more! The company had $23 million in cash flow from ops in 2008 but spent $64 million below the line (sort of hidden in the slush fund) in capital expenditures. Now, if that capex was helping the company achieve big revenue growth, then it might be "good" capex. But revenues are SHRINKING, not growing. This is simple, folks. THE COMPANY IS DESTROYING CASH. In a big, big way. I would say this company has at least a 90% chance of being bankrupt within 3 years. [more]