TMFJake (96.84)

It's Official - CAPS is the World's Greatest Investing Community

March 14, 2008 – Comments (1) | RELATED TICKERS: LUFK

We're number one! And number two for that matter!  For those of you who aren't familiar with MSN's Strategy Lab, six financial advisors are invited to compete against each other to grow a mock portfolio and to write about their strategy and trades.  Typically the strategy lab participants are professional money managers and advisors.  However, in the tournament that began this January, two "amateurs" were invited to compete. Both of these non-professionals are very well established CAPS community members, and, as I write this blog post, these CAPS players are ranked #1 and 2 respectively in Strategy Lab, beating out established professionals like Kelley Wright, Ken Kam, John Reese and Robert Walberg.  CAPS off to our Strategy Lab leaders:

1.  VY100:  Vad Yazvinski, joined CAPS in October and in a very short period of time has earned a 99 Rating and is ranked ~300 out of 47,000 CAPS players.  Vad contributes regularly to his personal blog, The Skeptical Capitalist.

2.  TMFEldrehad: As many of you know, Russell Carpenter holds the record for the longest tenure on top of the CAPS leader board and, after briefly dropping out of the Top Ten, is currently ranked 5 on CAPS.  Click-clack, I think you hear him coming. ;)  Russell also maintains his own stock picking blog/newsletter on CAPS, called EldrehadsPicks.  Thanks for LUFK EldrehadsPicks--I'm up 15% on this position in CAPS and in my family portfolio since picking/buying this stock 3 weeks ago!

Russell is officially representing CAPS in the Strategy Lab and was invited to compete because of his CAPS track record.  Vad won a special "Strategy Lab Open" contest that MSN sponsored in 2007 to identify a hobbyist to compete against the pros.
 

Whether or not Vad and Russell continue to lead the pack in Strategy Lab (no pressure guys, but you can really help support the claim in this blog's title by staying on top!), I view their success as yet another sign that community intelligence matters.  Both, IMO, do an amazing job of valuing companies (although I need to coax Vad into putting his insights into CAPS pitches as well as his blog).  I knew neither before we started the CAPS Community research project, but I have learned and profited from Russell tremendously over the last year, and I am happily becoming immersed in Vad's investing ideas.  Two more examples of how CAPS has helped me to find better investors and better stocks. 

But enough of my cheerleading.  I want to use this blog to ask Russell and Vad a few questions:

Tell us about your portfolio strategy

Russell:  Buy good companies at good prices and try not to pay too much attention to Mr. Market's mannic-depressive mood swings.  I personally keep about 15-20 individual stocks in my portfolio and also invest in low cost index funds.

I don't pay too much attention to things like sectors, asset classes, or diversification.  I just try to snatch bargains when I see them, wherever I see them.
 

Vad:  1. Over the long haul markets go up--pure and simple. Regardless of what the economic conditions are, simple fact called inflation means nominal stock prices are virtually guaranteed to be higher 10 years from now.

2. The above means that being 100% short is a pure gamble. Which is why I ignore some of the CAPS leaders that have majority of their picks as a short. To me if you can't play the long side-over the long haul you'll lose.

3. On the other hand, it is easier for me to find really crappy companies that are likely to go out of business and thus I use shorts as a hedge to smooth out the volatility. Similar to something like long/short 130/30 hedge funds (In my case it's more like 100/50)

How do you use CAPS?

Vad: I found CAPS to be extremely useful to keep track of most of my investment ideas, both long and short. Any time I like or dislike a particular stock enough to actually do some research--I go into CAPS and rate it. I also run my quant screeners regularly and I usually drop the picks I like into the watch list.

Sometimes I also use it as a general research source, looking through what's on the best investor's minds, scouting through the Top portfolios… If I find something that looks like and interesting idea, I usually track it and sometimes even buy it.  I also found CAPS 5 star ratings to be a pretty solid indicator of what I call the "blue chipness" of the stock. 5 stars does not automatically mean great absolute return potential, but from what I've seen so far is a great indicator of risk adjusted potential- hence lower volatility with a solid return.

Russell:  Geez, where do I begin?  I use the star rankings, pitches, blogs, links to news items, and more.  CAPS, for me, is a great place to generate possible investing ideas.  "Gee, that's a 5-star stock?  I wonder why?"  "One of my favorite CAPS players just went thumbs-down on a stock on my watchlist?  I'd better check out that pitch and find out why and make sure I didn't miss something important."

CAPS isn't, and I imagine never will be the only source I use when researching companies and stocks, but it is pretty much the place I always turn to first.  Frankly, CAPS is a whole lot of fun.  That fun keeps me engaged, keeps me coming back, and leads to me doing research on my own--all of which help me learn and become a better investor.

Do you have a stock pick for me?

Vad:  Today I like China Natural Gas's (CHNG) risk/return trade off the most, as I think its way oversold at this price. Many people believe that somehow it's not a real deal, may be even a scam, but I think it's a real diamond in the Chinese swamp of severely overbought equities and if they do succeed in getting onto NASDAQ this year- it could be a multi bagger…

Russell:   Ummm.... have you seen my CAPS scorecard?  I've got like 200 of 'em, and almost half are outperform calls.

Of course I sill think Lufkin (LUFK)offers a pretty compelling risk/reward profile right now, which is why I gave it 'Top Pick' designation in my EldrehadsPicks blog and why it was my first selection (and best performer to date) in my Strategy Lab portfolio.