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My Best Picks! (They may not be what you think)



November 30, 2006 – Comments (11)

A few times I've run into Fools who look at a pick list the size of mine, or Seth's (TMFBent), or Bill Mann's (TMFOtter), and ask themselves, "With so many picks, how am I supposed to know which ones they think are their BEST picks?"

That's a good question - and I thought I'd take a moment to try to answer it. My best picks, though, might not be the ones you think.

My highest scoring picks to date, CHSD and PGWC, aren't my best picks. Frankly, I stole those from better dumpster divers than I can ever hope to be. Sure, I recognized them for the junk they were once I heard of them, but picking those to underperform was like shooting fish in a barrel. Hardly what I'd consider my best work.

Of course there's my own foray into dumpster diving. I was the first to call underperform on AFVS.OB - and I have to admit, finding that company, making that pick, and mocking it mercilessly in my pitch was certainly a whole lot of fun. My best pick in CAPS to date, though? Hardly. Again, that pick seemed, and still seems, to be like shooting fish in a barrel. The only hard part was finding it in the first place. Once found, it took little insight or analysis on my part to determine it was worthy of an underperform call that would almost certainly be successful.

How about my foray into alternative energy - especially fuel cells and ethanol? We're getting a wee bit warmer here, but still not my best picks to date in my view. I've long been bearish on alternative energy - ever since I made the huge mistake of getting caught up in the hype myself a few years back and investing in BLDP with *real* money. I got out before I took much of a loss, thank goodness - but I didn't contribute anything new, or learn anything really new, with any of those picks.

While I don't have a singular best pick, I do have a few that I think are among my best.

The first (temporally speaking, not necessarily the best) may have been my underperform call on Ann Taylor (ANN). Why this pick? It certainly hasn't been my highest scorer - it netted me about 12 points. This is one of my best picks because at the time I made it, I was the only Fool to be thumbs-down on this retailer. I saw what looked to me like a bit too high a valuation, and acted on it despite the overwhelming outperform sentiment of my fellow Fools. I could have looked at the CAPS rating and said, "Zero underperform calls? There must be something I'm missing, I think I'll pass." but I didn't. I learned a great deal from having the courage to trust my instinct and make this call despite what my fellow Fools thought, and that's why I think this was one of my best picks.

Another of what I consider to be my best picks is Dell (DELL) - and for similar reasons. At the time I pointed my green thumb upward on Dell, the stock had a lowly one star CAPS rating. You can read my pitch as to my reasoning for making this pick - and while it's far too early to tell whether or not Dell will be a long-term outperformer, I'm up about 20 or so score points as of this writing. Again, I think this is one of my best picks because I learned a great deal from making it.

Other contrarian picks I've made that I think were among my best were my underperform calls on Whole Foods and Wild Oats and outperform calls on a basket of hombuilders. It's a pretty neat feeling to bet against popular sentiment, and be proven right (at least in the short-term). While time will tell if this is something I can keep up in the long-term, I'm learning to trust my instincts more and more as my experience with CAPS grows.

One more pick that I think is worth mentioning... it happens to involve two CAPS calls, but is really one 'pick' - my outperform on Intel (INTC) and my underperform on Advanced Micro. (AMD). Again, you can read my pitches for my reasoning (especially my INTC pitch) - but with these calls I applied a concept that's been floating around in my brain for years, but which I had never acted on when it came to the stock market. CAPS gave me the opportunity to put this concept into action, and again, at least in the short-term, I seem to have been proven right. And here again, I learned a great deal - which is why I think this is also one of my best CAPS picks ever.

Though I didn't intend for there to be one when I sat down to write this blog post, looking back at what I've written there seems to be a central theme, of sorts, to all of my 'best' picks. That being that these were all instances where I put thought into action that I'd never put into action before, and learned a great deal from the experience. Sure, these were all successful CAPS calls, and I've had quite a few unsuccessful ones along the way as well, but it is with these calls, and others like them, that I'm slowly beginning to come around to the idea that this thing I call 'instinct' or 'intuition' might be a more powerful investing tool than I'd ever realized before.

I still have *a lot* to learn - several lifetimes wouldn't be enough to encompass it all, and I am doing my best not to let a few short-term successes go to my head, but I'm really looking forward to learning more and more about investing, and perhaps more importantly, learning more and more about myself through the process - and CAPS, and these 'best picks', and more 'best picks' in the future (successful scorers or not) will hopefully help me accomplish that.

11 Comments – Post Your Own

#1) On November 30, 2006 at 4:14 PM, HGtrader (< 20) wrote:

Good thing you didn't give a stock. Make people search through your picks and pitches and leave comments. We need more activity.

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#2) On November 30, 2006 at 4:30 PM, icon149 (99.67) wrote:

Thanks for the insite and being an adopter of this new Blog feature in caps!

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#3) On November 30, 2006 at 4:53 PM, CMFEldrehad (99.99) wrote:

I'm glad you found my insights helpful. I've learned a great deal over the years at the Fool and I'm just happy to pass along some small part of it.

Besides, having this blog is kinda like having my very own message board - kinda neat, no? I'm really liking this blog feature - though I probably spent a little too much time with CAPS as it was - now I'm completely doomed. :-)

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#4) On November 30, 2006 at 6:54 PM, XMFCramerica (95.08) wrote:

What an excellent post Russell. Truly insightful.

Reading your post reminded me of a really important point from "The Wisdom of Crowds" that I think is particularly relevant for CAPS. As Jim Surowiecki argues in his book, one of the critical elements for crowds to be wise is for each person to be making independent decisions. As he argues, if everyone is simply piggybacking on the thoughts of everyone else, you hardly have an intelligent community.

This point is as true in CAPS as it is in any other crowd. And I think it is particularly relevant for CAPS where the opinions of the entire community are so easily viewable. Who doesn't want to join the masses when they see piles of green thumbs? We are all so easily seduced by the opinions of many.

However, we must always remember that we have the independence to make any decision we so choose regardless of what everyone is doing. This quality takes strong discipline. But I think it is one of the key defining attributes of the most successful investors. Think Buffett during the tech bubble. He wouldn't touch an Internet stock when the rest of the world was piling in.

Independence will lead to smarter individual choices and a more productive community. Kudos to you, Russell, on maintaining your independence of opinion. This quality has, without a doubt, been crucial to your increasingly impressive track record.

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#5) On November 30, 2006 at 7:15 PM, CMFEldrehad (99.99) wrote:

I agree that if everyone is simply piggybacking on the thoughts of everyone else, true community intelligence never really develops.

This raises an interesting question for CAPS, though. There are a few players that have their ideas 'stolen' on a pretty regular basis. Is this 'piggybacking' or is it learning from one another? I think there's at least some of both going on - though for me personally I've found that simply piggybacking, without really understanding the other person's reasoning and deciding independently that I agree with that reasoning, is a fool's (small f) game.

I have all the respect in the world for Bill Mann, and have stolen some great ideas from him so far in CAPS. That said, my worst performer to date, RIMM, was a 'piggyback' in every sense of the word. I knew next to nothing about RIMM - I just dogpiled on because Bill was Top Fool at the time, or close to it.

Bill may still prove to be right on that call, but it is my worst scoring pick ever - I lost over 100 score points before I finally exited that underperform call (which may now turn right around and nosedive, but that's not the point).

Lots of other calls I've copied are those that I actually took at least a little time to understand - and decided that I agreed with. My track record with those is much, much better than it is with the few I just copied for copying's sake.

That is, indeed, another valuable lesson I've learned from CAPS. While I've never copycatted for the sake of copycatting with my real-money investments, CAPS has already reinforced that principle. The implications of this lesson are also important for CAPS. My guess is that, over time, other players will probably come to the same realization that I did - that there's a big difference between blindly copying and copying because you understand and agree with the underlying thesis. The former harms community intelligence, the latter is a result of it, and helps to build it.

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#6) On November 30, 2006 at 7:47 PM, XMFCramerica (95.08) wrote:

That's exactly right. I think you nailed the distinction. There's a big difference between blindly copying and independently choosing to agree. You can read someone's analysis and decide to agree; that remains an independent decision. If each and every person is making independent judgements based on everyone else's analysis, you have a vibrant, dynamic and most importantly, a truly wise community of investors.

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#7) On December 01, 2006 at 9:20 AM, obiwankenobe1250 (79.12) wrote:

TMFEldrehad - a great start to a wonderful blog resource. I, for one, have admired your results for a few months now.

I made my first seven picks on Aug 24, 2006. Now, just a little over 3 months later, I think my skill level has greatly improved, although my best performer of my current 116 picks was number 4 - GRA (W.R. Grace +99.89%) -- on that very first day. Odd, indeed.

What this tells me is that there is an awful lot about the stock market that is largely outside of my control, and that I had better spend a LOT of time researching prior to making real portfolio picks.

Observing your picks, TMFEldrehad, and those of other Top 10 performers, has indeed increased my ability to analyze. Applying lessons learned to my REAL portfolio has been very helpful. Thanks for keeping the bar held high so that we in the masses can't just throw darts at the stocks page and pick winners. You force us to think. Your thoughts and picks are a wonderful contribution to our lives.

Just think of how many others you're helping to learn about investing! (You can tell your family and friends that you have groupies, who need your leadership, if they ever criticize how much time you spend here).

Ultimately, you may be positively impacting many lives because of this little "CAPS game" you like to play. Of course, the Motley Fools who write the newsletters do their part, too, yet you may indeed be having an impact on people's ability to think more wisely about investments, so this isn't just a toy.

Pretty doggone amazing, and my hat is off to the Fools who made CAPS available. Keep raising the bar TMFEldrehad, but avoiding long naps might be wise. Part of what you teach ultimately may enable your copycat students to challenge your lofty dominance. Plagerism is, however, the sincerest form of flattery so I know you are savoring these moments and rightfully so!

Fool on!

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#8) On December 01, 2006 at 10:35 AM, CMFEldrehad (99.99) wrote:

All I can say is a very sincere thank you. Your words humble me.

While this place we call the Fool hasn't been my only source of investing education over the years, it has certainly been among the most important. I can't tell you how much I've learned, and I am truly very grateful for the opportunity to pass some small part of what I've learned onto others.

I'll do my best to keep raising the bar, as that will mean that I'm continuing to grow and progress as an investor - and when it comes to being unseated as Top Fool, I have no illusions - it's only a matter of time before that happens. Downwithpumpers has been nipping at my heels for a long while and has been able to pull ahead of me for brief periods, and did you notice that Seth (TMFBent) has moved into the #3 position? Go Seth! I can think of few people I'd rather hand my sparkly Top Fool jester cap to when the time comes.

Again, thanks so much for your kind words, and I'll be looking out for your appearance on the Top 10 leaderboard someday.

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#9) On December 01, 2006 at 6:52 PM, intlvaw (87.92) wrote:

TMFeldrhad : A truly inspiring call to independent thinking; stumbling across this CAPS thing today has really inspired me to examine my real-world portfolio with fresh eyes and ask myself 'do i really truly beleive that each of these stocks will outperorm the market from here -or Iam i just a little in love with tickers that have treated me well in the past - your obviously stellar record together with your points above that even the best pick is potentially just about to turn around and show you up is a great encouragement ot others. Underperform picks ,though , thats a little too scary -its hard enough to find a few good stocks , how much more to find convincingly bad ones!

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#10) On December 02, 2006 at 8:09 AM, RandomGuy123 (74.39) wrote:

My best pick was the huge booger I just pulled out of my nose.

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#11) On December 04, 2006 at 11:18 PM, Imperial1964 (94.00) wrote:

My best scoring pick is actually a stock I intended to pick to underperform, Northwest Airlines (NWACQ.PK). I forgot to change the selection from outperform before entering my pick. Rather humbling, eh? I dropped the pick as soon as I could, for a 45% gain, somehow making me the current score leader :P.

My favorite picks are sector picks, rather than specific stocks. I took a position that the price of oil would go back up and the dollar would drop. I bet the farm, so to speak, on oil production and drilling stocks with good valuation and foreign ETFs selling slightly below their book value while the price of oil was dropping and the dollar was going up. That took me from my then high rating of 97.54 down to close to 8.

Fortunately, I stuck with what I believed in. The recent comeback in oil and drop in the dollar has offset some horrible picks in biotech (I lost 68% on an underperform on ITKG.OB) . Just today my rating is back to 97.98, out-ranking far better players than I. Additionally, I learned some of my shortcomings.

On piggybacking: What does one learn by piggybacking? CAPS is about learning and experimenting without real money. That's why I enjoy reading your blogs, Mr. TMFEldrehad, and sometimes your pitches, but I haven't picked stocks based on anyone's score and recommendation. CAPS is about learning to play the market by making picks (including mistakes) you would not otherwise make with real money.

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