Gentlemen's Stock Picking Club

[bpp3]

Quote:

Originally Posted by twaddle In dollars or yen? I don't like any sectors that any sensitive to consumer spending or consumer borrowing for the next couple years, but TM does seem a bit oversold.

In dollars, I guess. Which should provide some natural currency hedging, to damp out volatility. Assuming the goal is risk-adjusted returns.

[greg]

Beyond ThunderStocks: A bunch of gentlemen enter; one non-gentleman leaves.

OK, after thinking about the nature of you beasts (and having no one come forward to do all the work polling and such), I had the following thought:

1) It seems to me that rather than benchmark against indexes, that we just have a mostly free for all against each other. Individualism reigns: We all pick our own 4 large caps, 3 mid caps, and 3 small caps. Foreign or domestic, it just doesn't matter. We post them on the day we start and "that day" determines the price we paid so everyone has a public record. (Someone needs to give me the ranges of large cap, mid cap, and small cap for all folks to follow also?)

2) We each start with $100K and buy $10K of each stock (and no tracking of trading costs). We allow one sell-buy before 2008, the dumping of one mistake and using the remainder of that $10K to buy another. We maintain our own portfolios and documentation, keeping track of dividends, splits, and such until the end of the year.

3) We allow folks who like ETFs and CEFs the option of substituting them for large cap stocks if they desire.

4) Other rules/guidelines?

At the end of the year, Dec 31st, we all show each other what we've got. The winner has the option (but not the obligation) to use Mad Max as his avatar for 2008 or Tina Turner--if a female wins.

Stock pickin time is here . . . . . . . . . . . ?

[greg]

So, I'm assuming no comments are a good thing?

I'm going in with the assumption that I just had a $100K windfall and need to put it into the market next week, hopefully on a dip day (a little timing but not too much). I'll use end of day prices for my ten choices (all choices made on one day next week). So far I've picked the following but may change in the next few days:

Large cap (+$10 billion): GE, DIA, EVX, and IAF ($40K)

Small cap (-$2 billion): EGLE, a smaller oil company, and ($30K)

Mid cap (between $2-10 billion): Vesta or solar panel maker/integrator choice?, a domestic utility?, and Pentair or something in the healthcare sector. ($30K)

I'll keep track of dividends as they accumulate in a MM fund, adding them to the capital gains at the end of the year.

I'm hesitant about domestic financials for the rest of this year, so I'm steering clear for now. I'll have commodities and Australian financials in IAF. GE is my mutual fund. And obviously, I like industrials right now.

I'm hoping this system is easy for everyone, with each person doing his/her own work but with enough info posted so that folks can see results, thinking processes, and . . . um . . . flaws--if they exist. I think things can be adjusted on the fly also, as people see problems. Sector stock picking, for example, could be done in a similar fashion, sort of hived off on a different thread if there is sufficient interest. No voting is needed; folks can quit whenever or start at any time, with little penalty.

[twaddle]

Hmm, so the game is to predict the highest gains over the next 4 months or so? No idea, but I figure the following could happen:

banks will report surprisingly bad earnings
the fed will lower the fed funds rate by 50bp
housing will really start to crumble in a big way

So, put me down for $150K in a medium-term bond fund, and shorting $50K of XHB. (Hmm, what happens if I don't have enough to cover?)

[greg]

Quote:

Originally Posted by twaddle Hmm, so the game is to predict the highest gains over the next 4 months or so? No idea, but I figure the following could happen: banks will report surprisingly bad earnings the fed will lower the fed funds rate by 50bp housing will really start to crumble in a big way So, put me down for $150K in a medium-term bond fund, and shorting $50K of XHB. (Hmm, what happens if I don't have enough to cover?)

A real 'strip stock Youtube video' made by you as a metaphor for you not being able to cover your . . . um . . . fake $100K financial assets?

How come things always go this way? Everybody always has to test the limits. Can't we all just get along play by somewhat similar rules? The problem as I see it is you get to make one (actually two choices) big macro bet, and most everyone else gets stuck with ten mini stock bets. You know someone will come along wanting to buy $200K of bonds and shorting $100K of XHB, just out-leveraging you a tad, don't you? Then a third person.

We can almost read folks' bull/bear positions by reading between the lines of their ten stocks. I don't think an explicit two part bet gets us too far in learning, IMO.

My preference is 'no leverage and ten different $10K stock choices' that may or may not work together to achieve the biggest gain (or smallest loss) for you at the end of the year (whatever that means).

[greg]

twaddle:

I'd like to see a thread where folks discuss how they might 'leverage up' for a bear or bull market--if they were extremely copnfident. It'd be nice to see some extreme ideas just for education's sake. I've purchased a few out-of-the-money GE long term calls, Jan 09 and 10 $40 in hopes . . . .

[twaddle]

Now you're getting somewhere! Sorry, but I just couldn't think of any educational value in picking 10 stocks to go long over a 4-month period.

I used to speculate with options once in a while. But I talked myself into the "momma says you shouldn't play zero-sum games" bit and cut way back except for the occasional portfolio insurance long put.

But I do find Taleb's idea of looking for potential Black Swans kind of interesting. So my approach would be to think about possible low-probability events that the market is basically discounting to zero probability and use a very small portion of my portfolio to place bets on that outlier.

I'll have to think about exactly which events I'd like to bet on, but it would be an interesting topic for a thread....

[JohnEyles]

Anything like this ?

[twaddle]

OK, Greg, I took a walk today and thought about this. Well, I thought as deeply as I could while eating a sandwich and being followed by a large hungry stray mutt.

My success with options and directional bets in general is probably 50/50 or worse. However, a single Black Swan pretty much made ER possible for me, and that was choosing to start a little software company right before the tech bubble. So, I'm attracted to the idea of betting on Black Swans.

Taleb's basic premise, as I understand it, is to protect yourself from negative Black Swans, and expose yourself to positive Black Swans. Where a Black Swan is defined as a low-probability (or rather an uncalculable probabilty) high-impact event.

The idea of betting only on positive Black Swans is also appealing because it means hoping for optimistic outcomes rather than pessimistic outcomes (even though I'm somewhat bearish these days).

So, I'm thinking I'll create a mini-Taleb portfolio. Something like $100K in TIPS and use the real interest coupon (about $2500/year) for my "lottery tickets." So, my downside is zero in real terms, and my upside is unbounded.

Hmm, what kind of positive Black Swan do I want to hunt for? I'm going to rule out large cap stocks since it seems unlikely that we'll see a significant short-term upside to any large cap. So, I'll probably poke around the small cap or microcap sector.

That's my philosophical foundation for the game. Now it's time to do some research....

[wildcat]

Yeah, why can't small caps play in this game?

[bpp3]

Quote:

Originally Posted by JohnEyles Anything like this ?

"We put the 'pro' in 'reprobate.'"

[wildcat]

Ok, if I have to play in the large cap space, I am watching MCO - Moody's and hoping they keep falling from the credit fiasco. They may get a few lawsuits thrown at 'em or some short-term doubts about their accuracy but long term I don't see how any of this will change the business. Two dominant players that perform low capital intensive, necessary analysis services and cover a debt market that is MUCH bigger than the stock market. So burn baby burn...

[greg]

twaddle:

I love hi-jacks. They're often better than the original thread.

So, we're looking for high risk-high reward bets--of any kind?

Or are things limited to low risk-high reward bets, using your example of taking smaller amounts of money ($2500 from tips) and seeking out unknown sticks of dynamite black swans?

And, of course, any amount of 'reasonable' leverage and/or shorts would be allowed--what ever that means (as long as it is explained)?

So , $100K in fake money; limited to three or fewer plays/choices (small caps or just about any financial instrument available to the general public allowed). And a time limit (with quarterly check ins)?

The winner gets a bat across the head for taking foolish risks?

[twaddle]

$100K portfolio. And the goal is to minimize downside overall, while exposing yourself to lots of upside. Anything goes as long as the investments are available to the average schmuck with a brokerage account at Schwab.

I would say no time limit. Play until we lose interest. Any educational value will be in the discussions, I think.

I'm already finding myself uncomfortable with the idea of swinging for the fences since it's so counter to the conventional wisdom.

Buying lottery tickets is a loser's game because you know the odds are against you. So how do you play if you don't know the odds? How do you create your own luck? How do you cast your net wide enough to improve your odds without diluting your upside?

Do you play in well-known speculative areas like solar energy, biotech, nanotech, etc? Or do you think out of the box, look for faulty assumptions, and try to exploit unforseen opportunities?

[katwoman]

Quote:

Originally Posted by wildcat Ok, if I have to play in the large cap space, I am watching MCO - Moody's and hoping they keep falling from the credit fiasco. They may get a few lawsuits thrown at 'em or some short-term doubts about their accuracy but long term I don't see how any of this will change the business. Two dominant players that perform low capital intensive, necessary analysis services and cover a debt market that is MUCH bigger than the stock market. So burn baby burn...

You and I think alike.

[greg]

Here's how I go on my ten stock portfolio:

Large Cap/etf

DIA 75.12 shares@ $133.12
GE 256.41 shares@ $39.00
GEX 232.88 shares@ $42.94
IAF 664.45 shares@ $15.05

Mid cap

HSE.TO 282.65 shares @ $(Canadian)37.25=$35.38 US$
EEP 193.84 shares@ $51.59
RSG 330.47 shares@ $30.26

small cap

TTEK 520 shares@ $19.23
PWI 497.76 shares@ $20.09
ALE 238.89 shares@ $41.86

The total is $99,986.00 (I had trouble with HSE.TO and the conversion to Merkin money.) I might add $16 to my cash acct.

Personally, I'm trying to beat the S&P 500, but that's my lowest expectation (other than NOT losing any money). For those partially interested in portfolio picking, you might just pick out four etfs and go up against others with different etf choices. I think that is a reasonable partial play here. Or just pick out four large caps that you think could beat out other large cap choices. Or mix and match like me. Or if you have a wee bit of wildness coursing thru your veins just pick three small caps at $10000 each and post them on this thread the day you start.

As I see it, it all goes (maybe well into 2008?) until it doesn't.



twaddle:
For the other, the Black Swan portion, I'm currently looking at calls (not puts) and Rydex double up funds. I'm about 90% 80% sure that the market will be up 10%-15% at the end of the year (knock on wood). I'm looking specifically for reasonable leverage (that I can understand) and a moderate mis-pricing of specific stocks or options--and a few additional days of panic, maybe. Whatever the heck that means.

[BUM]

Being a guy from:
small family
small town
small schools
small workplaces

I think small so my "all small cap" picks are...

VBK 469 shares @ 71.05
VBR 475 shares @ 70.08
IJR 486 shares @ 68.66

total $99,979.21

[brewer12345]

Quote:

Originally Posted by greg I'm looking specifically for reasonable leverage (that I can understand) and a moderate mis-pricing of specific stocks or options--and a few additional days of panic, maybe. Whatever the heck that means.

Options have become quite expensive lately. As for mispriced stocks, pick any bulker stock. Day rates have gone screaming upwards throughout the panic and actually hit a new all time high the week of the pit of the crash in the US. I like NM, but most any would do.

Edit: whoops! Just hit another record today.

[HFWR]

Quote:

Originally Posted by brewer12345 I like NM, but most any would do.

As luck would have it, NM in on sale today...

[brewer12345]

Quote:

Originally Posted by HFWR As luck would have it, NM in on sale today...

Makes no sense to me.