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CPACAPitalist (30.55)

When to end?



September 09, 2010 – Comments (8) | RELATED TICKERS: KRFT.DL , PEP , YUM

Since starting my CAPs career I have gone in and out of the All Star club about four times, I currently just broke the 80+ mark again and it has got me thinking, how do people decide when to end their picks?  It seems that most CAPs members only end picks when they are in the green, preferring to wait out losing picks in the hope that they comeback into positive territory eventually.  But if you have a pick that has done well for you, there are no obvious signs that there should be any movement up or down, it has kind of hit that stable trading range, do you end it to take your winnings or keep it active?  With 100+ picks active on any given day, its a lot of work to watch the stats for every pick.

 So anywho, its my first post, hopefully future ones are better but I wanted to get something out there.  If you have something to add, please do.

 Walter "CPACAPitalist" Kinney

8 Comments – Post Your Own

#1) On September 09, 2010 at 4:47 PM, XMFRosetint (51.01) wrote:

I arbitrarily close most of them, because the vast majority of my picks are done based off of basic quantitative analysis, and I don't really have the time to keep up with all of them. I have a few that I follow more in-depth, such as SSN, but it's usually the ones I have in my portfolio or are looking to add to my portfolio, and that's no where near 200 stocks.

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#2) On September 09, 2010 at 5:35 PM, chk999 (99.96) wrote:

You've closed a lot of picks at less than +5. Did you mean to do this? Any pick close at greater than zero but less than 5 ends up as if you hadn't done it as far as counting score and accuracy.

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#3) On September 09, 2010 at 5:50 PM, goalie37 (88.82) wrote:

I have two kinds of picks - stocks that I own or want to buy in real life, and stocks (usually ETFs) that I pick just for the fun of the game.  The ETFs I close as soon as they become positive.  The real life picks I let run as long as I am still interested in them as an actual purchase, regardless of score.  Like you, I was usually right on the edge of All-Star and wanted to juice my returns just a tiny bit by making some bets.  Since deciding to short any bond ETF I could find, my score has been much lower.  I'm glad it wasn't real money lol.

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#4) On September 09, 2010 at 7:26 PM, TMFBabo (100.00) wrote:

Picks closed for positive points will only count towards your accuracy if they're closed for 5 points or more.  I believe your score counts for every ended pick no matter how many points above or below zero. 

If you want to get your rating up there, score is obviously way more important than accuracy.  If you want to be a 99, then you'll have to care about both score and accuracy.  The easiest way to kill accuracy, as already mentioned, is to close a lot of underwater picks.  You should try to only close positive picks if possible.  

That's easier said than done, of course.  If you don't pick with a high rate of accuracy, you will end up closing only positive picks while accumulating a large number of underwater picks that you don't intend to close.  You will then end up with close to 200 underwater picks.

The only way to fix this is to pick with a high rate of accuracy and close underwater picks in a controlled fashion.  I do this with a certain accuracy target in mind.  Hate to say it, but most people aren't going to reach 75% accuracy or above.  It takes both sound CAPS strategy and a large number of very accurate picks to get there.

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#5) On September 09, 2010 at 10:27 PM, rhallbick (97.15) wrote:

I’ve ended a lot of picks in the red, which is why my accuracy is not terribly better than 2 out of 3 (I wasn’t particularly cautious my first year on CAPS).  Some of them later would have been green, which has made me more careful about doing that now.  If you were a real-life speculator, you might close a position as soon as you realize that you were mistaken about an equity’s near-term prospects (keep your losses small and let your winners run).  But that will hurt you the way CAPS is set up.

Best-case scenario is to select an equity near the beginning of a secular move and let it run for the whole move.  Second best is to be right about a short-term outperformance or underperformance and close it out when it’s over and move on to something else.  Third best is to select a well–run company in a good business (chronic out-performer) and hold on to it.  First and third scenarios require that you get in at a “good” price.  This is just my opinion of strategy here, of course.  I yield to anyone with a higher score : ).

And if you did misread the near-term prospects and you’re in the red, look at it again to see what the situation is.  If you just “over-paid” a little, there is still a good chance it will eventually catch back up to the S&P. 

Now then, directly to the question you posed.  I have an idea of my holding period when I make a selection.  It may be “forever”.  It may be as long as certain conditions continue to exist.  It may be until a perceived under-valuation becomes at least fair value.  It may be a short ride on the momentum train.  If it is a longer-term holding, then calm periods with no obvious catalysts for immediate big gains are of no concern.  Relatively consistent outperformance, over time, will result in enormous gains.  That was the purported bedrock for the founding of the Motley Fool.

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#6) On September 10, 2010 at 1:05 AM, tomlongrpv (61.42) wrote:

I have one kind of pick--stocks I won in real life.  I am "linear" I am told.  I just can't think enough to think of hypotheticals.  If I am not going to buy it, why pick it.  In light of this I have not yet ended any picks because I have not yet sold anything.  I rarely sell.  But I am considering my first sale and I plan on ending the pick if and when I do sell.   And this one will be to cut my losses on what I now think was an unwise pick.

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#7) On September 10, 2010 at 1:44 AM, ikkyu2 (98.20) wrote:

Check back in my 2007 blog about CAPS strategy.  The strategy is simple: Always end successful (+5 points) underperform picks.  Never end successful outperform picks.  Don't make unsuccessful picks in the first place.  There are a few wrinkles (this analysis assumes that the S+P is flat, which isn't always true), which I discuss more fully in that blog entry.

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#8) On September 10, 2010 at 11:54 AM, CPACAPitalist (30.55) wrote:

First of all, thanks to everyone for commenting.  I was pleasantly suprised to see so many comments, especially from CAPs heavy hitters in the 99+ rating bracket.  That is one of the best things about TMF to me, is the participation and discussion among readers.

 @chk999 & bullishbabo:  I was not aware that picks ended under 5 point did not count for anything.  I was ending picks that had been red that I was no longer confident in as soon as they got a few points into the green.  I will adjust my closing practices accordingly, hopefully increasing my score and accuracy!  Thanks for the tip.


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