hall9999 (99.57)

How to turn 30 CAPS points into 300...

November 07, 2008 – Comments (3) | RELATED TICKERS: CYCL , TDS , USM

  Here is my original pitch for Centennial Communications (CYCL) back in July 2007:

"After AT&T's recent purchase of Dobson Comm. (DCEL) I looked around for something that Verizon might be interested in. This is what I came up with."

  Three weeks later Verizon bought RCCC.  Still I hung on to CYCL.  But after the past year's carnage in the market the 80% drop in this stock equated to a loss of only 38 CAPS points so I cut my losses and ended my pick.  Lost a few points, took a small hit to my accuracy. 

  So, today AT&T announces that they're buying CYCL.  If I had just held onto the pick I would now be up 30pts.  But no, I ended that pick... and started it again at a lower cost basis.  If the reasons you picked a stock are still valid then an 80% drop should be considered a gift.  Thanks to that gift I have a $2 starting price on a stock that is being bought for $8.50.  

  I performed this flip on several picks in my portfolio.  In the CAPS world some might consider this "gaming the system".  But unlike "re-upping" where people restart picks after 5pts to improve accuracy (yeah right, you picked the same stock twice in a row - that makes you twice as accurate as the guy who just held onto the pick) there is a trade-off here.  There is a loss of accuracy in return for the possibility of higher percentage gains (and if the stock continues to go down you also take a higher percentage loss).

  But this is the closest that CAPS comes to dollar cost averaging.  However, CAPS is not a stock portfolio game, its a stock analysis game.  So what we're really saying here is, "I like the stock even more at this lower price."

By the way, the battle between AT&T and Verizon to be the biggest wireless carrier seems neverending and the pool of potential buyout candidates is only shrinking.  It might be worth looking into.  A couple of candidates are TDS and USM.