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When I've broken my own rules on Caps...



October 30, 2009 – Comments (5)

I have generally had the same results as when I've done the same thing in the market.

I've done it more in CAPS than in real life because it's much easier to do when you don't have real money on the line. I'm not talking about riskier stock picks as much because I do make riskier picks on purpose in CAPS to validate my theories in a safe environment.

I still do break my own rules in the market very, very occasionally, but I've always seemed to get hurt enough when I've done so, to make me reluctant to break them again for a while.

Back in May, I broke rule #1 while trading in CAPS. Rule #1 is to never invest emotionally. I was riding a big run-up from my CAPS score where I picked the date of the bottom exactly! (03/09/09) But don't give me too much credit for being perfect. Although I thought there would be a correction in March, that date happened to be my birthday, so it was the only reason that I picked it. Around mid May, I started to get the feeling that the correction was too much, too soon! Given the confidence I had picking the bottom, I decided that given my impression of market fundamentals, I would use some leverage and buy some ETF's I literally started buying ETF's a day or two before GMX's "I'm picking the opposite of all of UL's picks!" post. GMX has always been a blogger that I've respected and I still do.  He provided me with a large list of ETF's to short the market with, but it was UL's list more than anything that caused my reaction. You see, UL picked the bottom at the same time, but while I did it fairly conservatively, he did it leveraged and I saw the huge results he got. I went all in and was reminded about how being right too early is a lot like being wrong. GMX jumping in at the same time gave me some validation and Dwot and SpecBear were in earlier than me, (albiet much more conservatively)

What happened? Well I watched my score drop daily and posted rants on other blogs that the market is wrong until I finally capitulated. I don't remember the date but it was some time in July I believe. I started closing out of some of the ETF's and started to trade a sideways market. I kept my inflationary green thumbs and green thumbed some stocks that were undervalued. I also added a ton of red thumbed stocks that were overvalued. A funny thing happened when I did this. Although my green thumbed stocks did well, and half of my red thumbed stocks proved me to be right, the other half of my red thumbs seemed to make huge jumps when my inflationary stocks went up. They seemed to do it at a higher pace than my commodities did! My rank creapt up slowly and my score kept going down. That trend continued and usually when the market reversed direction my score went up but my rating went down. That was until this past week.

Since the market has taken a more deflationary view, those sky high overvalued red thumbs are plummeting. My score and ranking are now both going up together again. RDN, CROX, PIR, COT, DTG, and a ton of others are falling back to earth. None of these stocks were worth anything to begin with, so any of you deflationists should have a field day if the trend continues.There are about 50 other stocks out there that have gone up insanely at irrational levels. Take your pick and short.

So in closing, I'd like to post that like most of my other mistakes in life, I've learned a ton! I'm looking to go a little more red on Monday. I'll be shifting red more and more, but slowly over the next month. I'll be cherry picking overvalued stocks. Remember that I'm a stagflationist, so if you are a deflationist, you should outperform me if the market is deflationary.

I wish you all the best and as always I hope that this post helps,



5 Comments – Post Your Own

#1) On October 31, 2009 at 1:17 AM, BravoBevo (99.96) wrote:

Hey Chris.  Among some of the "rules" I try to follow is this one:  Don't overstay a bad position, you're bound to overstay a good one.

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#2) On October 31, 2009 at 1:39 AM, TMFUltraLong (99.56) wrote:

See, that will teach you to bet against the Imperial Force =)


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#3) On October 31, 2009 at 9:45 AM, TSIF (99.97) wrote:

Hmmmm, we both remember the bottom for the same reason.....birthday boy.... I knew I liked your style for some reason.... :)

I never have enough conviction either way and the accuracy system on CAPs keeps you holding bad choices instead of funnelling over to something else. I'm more than willing to capituate in real life, but do have that emotional hold sometimes.  And then their's the fear of short term capital gains when I've held a winner 9-11 months.  I should know by now that I'll have plenty of losers to offset them and let them go if it's "time".

So on CAPS I never have enough trash stocks, I dump them once they go green if they've been red a long time and most of my green thumbs don't keep up with a 30% rise in the S&P or i dump them too soon.  I do make some picks just to test the waters. If they go deep into the red, I often buy them in real life if my thesis still seems good. So CAPs is a good tool to test some of the "real equities" and i don't mind getting burned on them in CAPs if they give me the data I need.

Thanks for sharing your thoughts. Very applicable.


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#4) On October 31, 2009 at 5:36 PM, rexlove (99.70) wrote:

Chris. I think you should follow BravoBevo's lead. I noticed he never tries to time the market. I could be wrong but I haven't seen him pick any ultrashorts/ultralongs. He may try to time buys/sells on individual stocks but never the market as a whole. You may luck out and time the market high/low but the odds are against you. I don't think anyone in CAPS has been able to do this consistently.  

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#5) On November 01, 2009 at 9:06 PM, ChrisGraley (28.68) wrote:

Thanks for all the comments guys.


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