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reddingrunner (92.52)

What I like about CAPS scoring



June 11, 2014 – Comments (3) | RELATED TICKERS: VTI

First: a quiz:

A) Which is better, when the market goes down 2% but your portfolio only goes down 1% 


B) When the market goes up 2% but your portfolio only goes up 1%?

(B) sounds better because you have more money and more money is better than less money.  But if you think the only advantage to (A) is that it gives you better bragging rights, think again.

(B) IS better if you are retired and plan to spend the money. 

(A) is better if you have a longer investment horizon because it has increased your purchasing power (the value of your portfolio compared to the price of stocks in general).  E.g., if you are thinking about selling stock X and buying stock Z and X goes down 10% and Z goes down 20% you can now buy more of Z (assuming all other factors are unchanged).  

That's why I like CAPS scoring, it compares how I'm doing to the market as a whole (more or less - S&P 500) rather than just saying that I'm up 7% or down 11% since I bought.  

So if the market DOES correct 30% in the next year, but you can manage to hold your losses to 20%, don't moan about all the money you lost but rejoice that you are now better positioned (by about 10%) for gains in the long run. 

3 Comments – Post Your Own

#1) On June 11, 2014 at 3:21 PM, awallejr (30.35) wrote:

Except in the real world you can dollar average in a position.  You can't on CAPS.

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#2) On June 12, 2014 at 12:00 AM, reddingrunner (92.52) wrote:

the post on what i don't like about CAPS would be a bit longer than this one, awallejr!


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#3) On June 13, 2014 at 10:37 AM, edwjm (99.88) wrote:

One man's trash is another man's treasure.  The S&P comparison thing is a feature of Caps scoring that I do NOT like.

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