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July 22, 2009 – Comments (15) | RELATED TICKERS: CH , E , AP

As I look at my past CAPS picks, I can't help but notice a lot of boneheaded moves.  In real life, I scrutinize every entry price so I can make sure my returns will be satisfactory from there.  In CAPS, however, I seem to be willing to just green thumb stocks at any point, thinking that my pick will be right sooner or later.  That's a rather lazy attitude to take and I'm sure it's cost me over a thousand points and many accuracy points so far.

My green thumbs now are chosen to provide points reasonably quickly.  If I'm able to rack up points this way, then my real-life investing will improve as well.  It'll take a few months or more to clear out many of my ill-advised green thumbs, but it's an expensive lesson worth learning.  CAPS is a great place to keep tabs on your real life holdings and your real life watch list, so I would do well to choose my green thumbs wisely.  My carelessness stems from the fact that I have no money invested in CAPS, I'm sure.

In other news, the Nasdaq is on a 10 day win streak.  It must end sometime! I eagerly await a pullback.

15 Comments – Post Your Own

#1) On July 22, 2009 at 10:44 AM, portefeuille (99.60) wrote:

Actually I don't really see too many "ill-advised green thumbs" among your recently started or ended calls. And you are currently #28 in the "caps" game as to score points (one place ahead of my first (in time) player hansschmidt). You should "make the 10000 points" pretty soon I guess ...

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#2) On July 22, 2009 at 10:52 AM, portefeuille (99.60) wrote:

My player hansschmidt has not done very much lately so I guess (as the following figure suggests) you have not done much damage to your score in the past few weeks ...

 

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#3) On July 22, 2009 at 10:53 AM, portefeuille (99.60) wrote:

... and no, bullishbabo is not one of my players, hehe ...

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#4) On July 22, 2009 at 12:18 PM, TMFBabo (100.00) wrote:

Not that the stocks themselves are terrible, but my timing.  I'd often start green thumbs when the market had just gone up 200 points without caring.  200 point up days are rather poor choices for buying in real life, and I believe the same holds in CAPS.  If I'd been smarter about entry prices, I would've scored a lot more. 

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#5) On July 22, 2009 at 12:55 PM, portefeuille (99.60) wrote:

hansschmidt has made 535 calls so far and only 15 of those were started after February 24th (22 were ended after that date). And the score curves are almost congruent since late March even though my player has not made a single new call. That is why I believe that the calls you have made since late March are unlikely to have been particularly ill-timed since otherwise you would have lost in comparison to my drifting-along player. Not really that important, just a minor observation I have made.

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#6) On July 22, 2009 at 6:26 PM, BigFatBEAR (29.16) wrote:

I can totally relate. My first portfolio went long on just about everything it could find in CAPS in October of 2007. Needless to say, it's still -1300 and 40% accuracy or so. :)  A lot of great stocks were in there, I figured I'd be just fine...   little did I know a crash was imminent.

It's VERY easy to just throw in a thumb, dogpile, and get the instant gratification of having made a pick (well, OK, the 20-minute delayed gratification). But you're right - as in real life, the best picks are made when a stock is priced perfectly for buying/selling. Actually, the best picks are when you KNOW the market will move in the opposite direction of your pick, so that you can maximize your point gain. The S&P variable never ceases to amaze me.

When I shop around on CAPS, use the new limits, and abuse the watchlist function, my ranking shows it. When I'm lazy and careless, well, that shows up too.

I'd also like to thank you for what you said on my blog post. It meant a lot to me, and I think it will have an impact on how I manage my little IRA.

Good luck - I'll be watching you with great interest. For a new CAPS player and someone who has "low" experience (or so it says on your profile), you have some really stellar picks and performance so far! Keep it up.

-BFB

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#7) On July 22, 2009 at 9:06 PM, TMFBabo (100.00) wrote:

Portefeuille: I'm flattered that you still think my green thumbs weren't so ill-advised.  I'm just trying to make the point that if I approached CAPS green thumbs as carefully as I approach my real life holdings, I'd score more than I do now.

BigFatBEAR: You're welcome.  I'm glad you took my comment seriously.  I have been trying not to comment so much, but I couldn't help but comment on your blog. 

From what I've seen, you are a good red-thumber; GMX even favorited you, and GMX is one of the best red-thumbers, period.  However, you really don't have many green thumbs in your profile.  I'm going to assume that you need some work in identifying good buying opportunities.  

I suggest my blog post here as a good starting point.  Also check out this thread, comment #3.  Check out the "What Has Worked in Investing" link that portefeuille provided.  I have yet to read the entire thing, but in skimming, I've yet to see anything with which I disagree.

Forget economics for a moment and learn solid investing principles first.  Economics is great, but you can probably identify almost any issue and there will be very smart economists on either side of the debate.  As far as solid investing goes, you'll see that many value investors are often on the same side of the debate.  I don't ignore economics in my investing decisions, but I pay little attention to it.  Solid investing principles such as identifying undervalued equities and knowing when the market is too expensive are of much more importance than predicting what the economy will do in the short-term.

As far as my CAPS portfolio is concerned, be a bit cautious.  In real-life, I'm willing to take small losses to buy something else that drops to a price where I can't stay away.  I am not willing to do that in CAPS, so I sometimes leave bad picks running with the hopes that it will turn positive again one day. 

Also, if I only chose picks in CAPS that I would consider buying in real-life, I'd only maintain 50-75 picks.  However, I also came to CAPS to win, so I have inverse ETFs, I red-thumb overvalued companies (AZO, PALM, etc.), and I also red-thumb .OB and .PK stocks to add a lot of picks.  I do also have green thumbs I wouldn't buy in real-life but I think will give me points at some time.

I'm not lying in my profile.  I have less than one year of experience picking stocks in real-life.  However, even when I picked my first stock, I was pretty prepared to handle this bear market.  I've done quite well for someone with so little experience, and I attribute that to my studies.  Ever since I became interested in stocks, I've read thousands of pages worth of books and a few papers too.  There are, however, many books out there that are pure garbage.  I refer you to my blog post again for a good starting point of solid investing principles.

Someone asked Warren Buffett how to become a better investor.  He simply replied to "read everything in sight."  Ignore the garbage and read the books from my blog post and also that paper from portefeuille's link. 

If you read The Intelligent Investor and it doesn't strike you as pure genius, I'm not sure you're prepared to be a long-term investor type of person.  I think you either get it or you don't, but you won't know till you read it and other solid books in value investing.  

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#8) On July 23, 2009 at 1:39 PM, anchak (99.84) wrote:

Excellent...I missed this somehow - all the best in your investing.

On an aside - Hans - bugger you need to prominently discuss good papers like the one Bullishbabo mentions here.

Very nice read.

Bullish - I typically use Piotroski as my main value screener - what do you use?

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#9) On July 23, 2009 at 1:42 PM, anchak (99.84) wrote:

Oh and most of those picks are not in my main - but this profile

ac360

 

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#10) On July 23, 2009 at 2:32 PM, TMFBabo (100.00) wrote:

anchak: I regard Piotroski and his work VERY highly.  It was after I read Piotroski's paper last year that I became convinced that beating the market isn't that hard.  However, I don't screen according to his principles -- I run my own screens.

As far as value go, my favorite measures of cheapness are low PB and low PS.  I also like price to 10 year earnings, but that's not easily found on free screeners.  I may also include a few things such as RoE, current ratio, LT debt to equity, etc. but I try not to be too strict because what comes next is more important.

Using the last 5 quarters and the last 10 years of financial statements, I then take a quick 5 to 10 minute look at the company's cheapness, profitability, and health.  Obviously cheapness is most important, but profitability and health are also quite important.

If I see quite a bit of LT debt, I'll go the the latest annual report and see the LT debt and contractual obligation schedule.  If not, I skip that part altogether.  Lastly, I look at recent headlines to make sure there aren't any major scandals or other incidents that would scare me immediately.

I believe (as I'm guessing you do) that a list of stocks chosen by simple screens for good value and higher profitability/health will beat the market handily without any further adjustments.  However, I like taking my 5-10 additional minutes to make sure everything on the financial statements look good.

I believe that good management will maintain good numbers over time, paying down debt, keeping some cash reserves, not letting inventory get bloated, not overexpanding, etc. etc.  I invest purely using stats/ratios and financial statements.  It really doesn't take very long.  

I haven't screened in over a month or two.  I maintain a large watch list of stocks that I know I'd be willing to hold.  Given the market's volatility, I've taken to short-term trading to take advantage of short-term pullbacks in my stocks.  A 2% drop in a major index often leads to 8% or higher drops in many of my small caps.  Small caps happen to be the cheaper stocks based on PB and PS, and I also believe they produce superior returns as has been researched by many academics.

Anyways, using this short-term approach, I've done very well since the market started to peak in May/June and I will continue to do so until I think the picture looks a lot more clear for the future.  I believe I'm quite capable both as a long-term guy and as a trader, so the only thing I don't want is a major market plunge.  Sideways markets and raging bull markets are both fine by me.

I do other screening too, such as looking for high beta stocks hitting lows and other special situations, but those aren't worth going into detail (this only worked in March).

If you look at my CAPS green thumbs, you'll see a lot of picks I chose at bad times (local maximum point in market) and you won't see a lot of green thumbs I'm dying to make because I'm waiting on better prices.  Also, my micro caps aren't allowed to be picked so I just keep them in my watch list.

When I was even newer than I still am, I commented about stock screening and mechanical investing, but nobody really paid any attention.  I'm glad someone (a highly ranked player at that) finally wanted to chat about it.

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#11) On July 23, 2009 at 3:11 PM, anchak (99.84) wrote:

I will respond later in detail.....

May I extend an invitation to this Fool board that some of us run ... called  thestinkyfeet ( you'll see some familiar names - and some not so familiar ones)

We also have a player in CAPS by the same name. Its more of a discussion oriented environment.

Love to have you there - if you are willing.

 

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#12) On July 23, 2009 at 3:22 PM, SkepticalOx (99.44) wrote:

It was after I read Piotroski's paper last year that I became convinced that beating the market isn't that hard.

You're kidding right? 

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#13) On July 23, 2009 at 11:13 PM, TMFBabo (100.00) wrote:

anchak, I'll check it out. 

SkepticalOx, you're right.  I became convinced it's possible to beat the market after reading that paper.  However, after all the reading I've done since then and investing for a little bit, I don't think it's terribly hard to beat the market.  

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#14) On August 04, 2009 at 12:47 PM, BigFatBEAR (29.16) wrote:

bullishbabo

Congrats! As of right now, you're ranked #10. That's so cool.

Now here's a challenge...  let's see you stay here without any more "ultra" picks. :D

-BFB

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#15) On August 06, 2009 at 7:30 AM, TMFBabo (100.00) wrote:

BigFatBEAR: Thanks! Believe it or not, I reached 7th a few months ago, when nearly all my active picks were positive.  I actually had 91.55% at one point.

With all the hoopla about ultras in the news, I've started to think about life after ultras in CAPS.  I'll probably replace them with a bunch of green thumbs if they're eliminated.  I have decided to stop red-thumbing individual companies, however.  I will stick to my strength, which is green-thumbing companies I deem to be undervalued.  I'm not quite as good at red-thumbing overvalued companies.

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