odmonk (52.16)

Plumbing the depths: my lowest scores on Caps

May 13, 2008 – Comments (2) | RELATED TICKERS: IIG , SIRF

Hmm. My worst score of all time came about because of a pick I made the second week I was on Caps. As my profile states, my experience was (and is, but less so) Low, and my risk tolerance is Medium. At that point, though, I was still taking risks that would more resemble High :-)

My eleventh pick was IIG, and it was an underperform, motivated by an empassioned pitch to that effect. What research I was able to do (I was new at this after all) reinforced the comments of the pitch. I came to firmly believe that IIG was due for a correction, so I made only my third underperform pick. Twenty-nine days later, after the stock had risen over 67% and I had what was to be my worst score ever (so far :-): -65.56. Ouch. Well, the fact is, of the ten previous picks up to that point, seven of them closed in the red. (Ah, but three stayed in the green, and are still active, including one contributing to my Score Club 100 charm. So I was new to the stock market? No worries, mate.)

What I learned from this: I needed to define what "Medium Risk" really meant to me, and how I was going to use the time-frame to help me keep track of how patient I wanted to be. That actually took a while, and in fact, I eventually picked values that really are a little more timid than I would like, but looked better somehow. I decided that the time-frame would help me guide my patience for badly-scoring picks, with (for example) a one-year pick needing only to score better than -25 to stay alive, and a three-year pick needing only to score better than -33. I make few picks greater than three years, and even fewer short-term picks, being interested in investing for the longer haul but not feeling experienced enough to crystal-ball my way five years out.

So, the rules I evolved over time would have limited my IIG pick to only a -25 point loss before I closed it. That would be an improvement.

Ah, but I learned something else as well: in the market, timing is everything. After closing my first IIG pick, I still felt it was going to go down at some point. So, I kept an eye on it. In January 2007, I picked it again to underperform. This time, I was right (enough), and that pick is still earning points for me, currently at +56.34. Ah, sweet vindication... :-)

My second lowest score? Much less educational (for me, and you :-): SIRF. This was an outperform pick I made after being on Caps almost a year. I believed in the company, its products, and its business model, and so did a lot of other folks on Caps. So, what happened? Real life. I was called away and unable to participate in Caps regularly for a while, and during that time, the stock crashed (well, relatively at least). By the time I could get to it (or at least noticed it), the score was down more than 70% and the score was -56.03. Close that sucker!

Moral of that story? Don't turn your back :-) So, what did I do then, hmm? Well, I no longer was comfortable with the stock. As best I could tell, there was little inherent reason for the drop that I could see, which either meant a) irrational market, or b) stuff imperceptible to my eyes. If anything, at that point I would have made an underperform pick, but had not enthusiasm, and still feared both a) and b). So, I just left it closed, and moved on. Well, that stock has wriggled around but right now it is still lower that when I closed my pick, but I suspect, not by as much as the market. But me, I only like my rollercoasters to be real, not symbolic :-) Sometimes (maybe often?) the right thing to do is walk away...

Thanks for reading.