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Would CAPS leaders know a good stock if it hit them?

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June 07, 2008 – Comments (7)

Every month or so (I forgot last month, shame on me), I post about how picking garbage to underperform (like I am doing with this portfolio) requires little to no skill. Yes, despite all the posts by other players denying this, I still believe it.

So for all the players out there who pay attention to the top 20 or so players trying to find good, outperforming stock picks, pay attention to how those people got to their current ranking. Have they actually picked outperform on anything or do they just short garbage? Beware the garbage shorters because it is easier than you think.

Yes, that's what I meant to write.

I think there should be an optimist charm which indicates that a person has chosen outperform on more than 75% of their picks. Then it would be easy to avoid certain portfolios when doing research.

If you want to know whether I am any good at picking stocks to outperform, the answer is "yes", and you can check out my other portfolio - RonChapmanJr - to see for yourself.

Feel free to comment about how skeptics are useful for CAPS and how you think picking underperform on stocks is really difficult, but realize that you are missing the point of these posts.

7 Comments – Post Your Own

#1) On June 07, 2008 at 2:09 PM, RonChapmanJr (32.98) wrote:

oops, logged into the wrong account.  silly me.  oh well, point of the post remains.  for anyone reading this for the first time - this should have been posted to my "antironchapmanjr" profile.  

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#2) On June 07, 2008 at 5:37 PM, MakeItSeven (31.92) wrote:

O.K. since you keep repeating this, I'll bite:

- What is your definition of "garbage" ?  If I short GoldmanSach or Berkshire Hathaway, say, and they happen to go down 20%, 30% later, does that make them "garbage" ?

- If you define "garbage" as cheap stocks priced under $5 or less, especially the .OB .PK companies with lax accounting standards, then I tend to agree.  If you call any shorted stocks garbages then I do not agree.  In fact, taking out the really cheap stocks then I don't think your antironchapmanjr portfolio will do well at all.

-  "picking garbage to underperform requires little to no skill".  You're a good player so you should know that half of the task of making a profit is picking the right stocks, the other half is knowing when to get out, especially for the cheap and volatile garbage stocks.

To prove that it requires no skills then you have to use an entire automated procedure that takes no skills.  Let's say if you just add 5 CAPS 1-star stocks which go down the most each day (or any list of "bad" stocks which get reported each day) to your portfolio.  After your portfolio becomes full then you just close the 5 oldest ones to make room for the 5 new ones.  If you do that and can still get a good score then your claim is true otherwise I'd say that it takes a lot of your timing/judgement skill to make the antironchapmanjr work.

[On a related notes, for several years between 2001-2005, somehow I kept thinking that Apple was a bad company so I kept shorting it off and on.  However, overall, I still made good money on my shorts so, despite being a lousy stock picker, I was a good market timer.  Your reasoning simply ignores timing skills.]

- Lastly, your RonChapmanJr portfolio is doing much better than the antironchapmanjr portfolio so if that seems to prove that going long is easier, isn't it ?  It's the same thing in the real world, most long-only mutual funds do much better than the bear funds in the long run.  If it doens't take any skills to find the "garbage" stocks to short then why doesn't the bear funds do better ?

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#3) On June 07, 2008 at 6:33 PM, FleaBagger (28.07) wrote:

Seven's last point is very good, especially since the long-only mutual funds, as a group, aren't very stiff competition.

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#4) On June 08, 2008 at 12:52 AM, ricoy5 (26.25) wrote:

Sorry everyone, I ten to agree with Ron... I know that pointing out bad companies, corrupt mgmt and scams is a big help in avoiding the "story of the week" (especially in the micro-cap section) but in my mind, the real benefit of the red thumb is to provide an opposing veiwpoint for real companys... the contrarian view.

shorting pink sheet and overthecounter... is that really providing the contrarian view?  would'nt the real oddball be the OTC stock that you'd really go long with... real world, real money???

That's why I like Ron's idea of a new charm... it's more descriptive than either the YESMAN or a lack of the SKEPTIC.  and you don't have to resort to really dumb ideas like making shorting of pk/otc stocks worth less (that would be my idea... but I'm a pinko)

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#5) On June 08, 2008 at 11:19 AM, abitare (43.81) wrote:

I agree somewhat. But I think many people find useful content all over CAPS. I do not take all 20 Top Fools as leaders to follow. I like dwot, Demon, everyday, FB, tenmile etc.... but many CAPS players provide useful content. FB is the king of useful content, hense his following.

There are many "Top Fools", who got there by outperforming Oil or Gold. I have no problem with that. At some point that trade will reverse and they will likely disappear into the nameless 50k other players.  

If I wanted to make Top 20 I would create an account and Underperform all Oil and Gold stocks. A crowded trade, that just needs double digit interest rates and some Obama Capitial gains tax and wealth distribution to kill the trade, as Volkner killed the previous commodity bubble.  

I did create abitareperfect, who is a a pure market bear.

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#6) On June 16, 2008 at 7:06 PM, adventurerneil (< 20) wrote:

I'm not so sure Ronchapmanjr is doing "much better" than the anti portfolio...   99.96 vs. 99.97? Doesn't sound like a huge difference in score to me.

I'd say both take a lot of patience, timing, knowledge, etc..   but tend to agree that it seems harder to get ahead as a bull in CAPS somehow. Any thoughts on why this might be, Ron?

Instead of an optimist charm (which 75% of CAPS players would get), why not automatically make each player a Bear or Bull, depending on whether they have more red/green thumbs? It could also be a bit dynamic, and shift with your picks, which might be a cool indicator.

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#7) On December 09, 2008 at 12:20 PM, becon800 (99.41) wrote:

I am with you! SHORTING is the easy way out and quickest way to increase rankings, but it takes skill to pick winners.

 I'm posting RonChapmanJr as a favorite.

beacon800

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