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Is it really easier to pick losers?



July 29, 2007 – Comments (3)

There’s been a lot of discussion on CAPS recently about the merits of under perform picks, particularly for bulletin board and pink sheet stocks. The argument against ‘trash’ or ‘dumpster diving’ picks is that it skews CAPS players’ ratings and results in more weight being given to players who make those picks. It’s also not representative of real investing since these stocks usually can’t be shorted.

Since I’ve made a few trashy red thumbs in my stay here, I decided to slice and dice my CAPS portfolio to see how much they’ve improved my score.  I’m not trying to defend my CAPS play style or degrade anyone else’s, just trying to see if I can learn anything by looking at the numbers.

My CAPS portfolio currently has 73 picks, 45 active and 28 ended.  Of the 73, 53 are outperforms and 20 are underperforms.  The picks cover 60 different stocks, re-ups were typically made to try and call a trading range or in anticipation of a pullback.

Of the 20 underperform calls, five were .pk or .ob stocks.  They are my second New Century pick (when I first picked it, it hadn’t been kicked to the pink sheets yet), NNRF.PK, IBCIQ.PK, KDKN.OB and SCEY.OB.  All five of those picks were/are positive scores.

CAPS currently shows me with a 70.59% accuracy rating, a few of the ended picks fall in the 0 - +5 point range, so they don’t count in the accuracy calculations.  In outperform picks, I’m 33 out of 49 for an accuracy of 67.3%.  For all underperform picks, I’m 15 of 19 for an accuracy of 78.9%.  On underperform picks for other than .ob and .pk stocks, I’m 10 of 14 for an accuracy of 71.4%.  If I back the .ob and .pk stocks out of the picture, my overall accuracy goes to 43 out of 63 or 68.3%.  The .ob and .pk shorts contributed nearly 147 points to my score.

Without the trash shorts, my CAPS points would be 424.53 instead of 571.44 and accuracy would be 68.3% instead of 70.6%.  Looking at players with similar points, accuracy and active picks, I’d drop out of the 1% but still be somewhere in the 97 or 98th percentile.

Bottom line:  Shorting pink sheet and bulletin board stocks has definitely helped my CAPS player rating, but not as much as I would have thought. There was also very little difference in the accuracy of my short vs. long picks if the pink sheet and bb shorts were excluded.

The only way I think you could eliminate shorting pink sheet/bb stocks would be to take them out of the CAPS pool altogether. Without the underperform option, it wouldn't be possible to give the stocks a star rating.  That’s worthy of debate, but if you want to eliminate shorting pink sheet/bb stocks, realize that probably means not rating those stocks at all.

3 Comments – Post Your Own

#1) On July 29, 2007 at 8:17 PM, EPS100Momentum (72.59) wrote:

Get 99% underperform  accuracy rating picking the .ob or .pk stocks that soar 50% or more on the day. Thats why I say They should be eliminated from CAPS and all scores of all members should be adjusted to what their scores would have been without .ob and .pk picks included.

 If you scanned the market daily for .pk or .ob that soared on the day by 50% or greater you can almost with 99% acuracy put a underperform rating on it and be guaranteed of it going down. Why? Because these stocks are 99% of the time pumped up on the day or couple of days at most. They come crashing down just as fast as they went up.

 Another strategy is to find the .pk or .ob that did a reverse split. That also works great for underperform because they also coming crashing down just as fast back to pre-split level price.

Of course though they have to meet market cap compliance to be picked.


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#2) On July 31, 2007 at 5:43 PM, warrl (< 20) wrote:

Two separate questions.

IMHO, if we can't buy puts or short a stock, we shouldn't be allowed to *count* an underperform call on the stock.

(We should be allowed to make the call, though.)

I don't know what would be involved in enforcing that rule; it may not be feasible.

On the other hand, if you have previously made an underperform call - whether it's still open or not - when the stock *becomes* unshortable and unputable, you should still get credit for the good call. Maybe your call should be forced closed...

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#3) On July 31, 2007 at 8:44 PM, rd80 (94.72) wrote:

What would be the incentive to make an underperform call on a pink sheet or bb stock if you couldn't make points from it?  Some players might make the calls, but I suspect most wouldn't bother.  That brings the question of how to generate a star rating for a stock when underperform calls are depressed even more than they normally are.


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