Vad's Best Ideas

It is tough to judge your own performance when competing against others and it is even harder to earn positive reviews for it, because critiquing other stock pickers usually trigger a "snake bite" effect (I can already feel at least three or four other posters nervously hitting a -3 rating for this post and wondering why didn't it go any lower). But I will try to be somewhat objective I guess as long as this post does not earn too many negative reviews I will consider it to be successful at delivering my (I hope) mostly unbiased opinion.

As my wife would say sometimes I try to bee too logical but hear it comes. First, we need to define what the objective of a good investment blog is- to me it is not only to post heavily wordy/philosophical or highly technical description of why a certain pick has been chosen but, I think, it is just as important to find your own style and your own reader, who shares your views and thoughts on the big picture and on how the markets operate. Given my "classical CFA" (:) financial education, one might think that I believe in mantra of DCFing every stock I pick for my portfolio but it could not be any further from the truth. Building hundreds of DCF's has taught me a very valuable lesson- if 15 very talented people are given the same set of data working independently from each other, they are very likely to come up with 15 different values for any given stock. The reason is pure and simple "Junk in- junk out". The different set of assumptions used by each person is likely to introduce significant variations to the final value and thus DCF alone while a valuable tool is not a magic crystal ball. Relative market value analysis is even more error prone but when used in conjunction with DCF's could be valuable in tilting the portfolio with the desired asset groups.

However, I would also caution my fellow readers not accept the mantra that "markets are efficient blah, blah" and that the only real way to make profits, is to be a momentum driven technician and that DCF's don't matter at all. There are quite a few good TA traders out there (for example one of the fellow posters here- Kevin (Wildmap)) that make some very interesting and timely calls but they are rarely consistent in the long run and the ones that are good, are also rarely purely TAs. They usually introduce a healthy dose of fundamental analysis in their investment management process as well. So as far as the big picture goes- to me the stock picking is a combination of good fundamental skill with a healthy dose of some momentum driven basic buy and sell rules.

As a second point I would also note that I tend to agree with Alan Greenspan's point on the validity of general economic forecast. I think, our ability to predict what the economy is going to do in the short term, is extremely poor. To me the key is in being flexible- for example my thoughts on the Fed cuts were not any way a prediction of what the Fed is going to do- which was the way many interpreted it- my thoughts represented what I would have done given the set of data available to me. Was I right or wrong is unclear at this point, but instead of being stubborn and explaining/whining on why didn't Fed do what I judged to be a correct move, I simply made new investment choices that I though would benefit from that move. Have I been generally correct on my calls with Sub Prime and Emerging Markets?- I think so. I proved it in August and early September with healthy gains in down market and then again with Chinese and Russian breakout. Could I have made more money by selling several winners earlier?-Surely I could have. But would I've made more money if I stuck with the "I hope that Sub prime rally continues and that Fed sucks" rhetoric? I don't think so. It could have made for a good reading with some good ratings but certainly is not a sound investment philosophy.

As an example my long time "Sub Prime" Top 2 partner Demonhawk, who has been breathing down my neck for almost a month, has lagged the other leaders recently for one simple reason- he decided to stick with his "When buying junk, buy junk philosophy" and missed out on some of the easy gains driven purely by rate cuts- commodities and emerging markets. I've enjoyed reading his thoughts, but I definitely disagree on a very deep fundamental level with his assessment of the similar risk profile of Countrywide and Indymac vs. IMH and LUM. I don't know what exact probabilities are, but it certainly naïve to believe that CFC (even after risk/return adjustment) is as likely to go bankrupt as is IMH.

Lastly, I think that participating in this contest so far has taught me another valuable lesson- posting good posts that describe your thoughts well and that also earn good ratings (or liked by all people) is tough or even almost impossible.

I think that the fundamental question for Ken and Mark now is very simple- Is blogging a really good way to weed out some of the "AAPL is cool because my sister has one" or "China's ADR's is hot because they are Chinese" "quasi master" investors that might even end winning all Top 5 spots given some luck and continued high beta push? Or are you purely interested in having people post cute articles that describe some interesting family or news related story, without necessarily having the sound financial basis for their decision? Or is the truth, as usual, somewhere in between?

Strangely enough, even some of the people whose picks are being used to run the actual MOFQX fund and who seemingly have a great long term track record, have made some very disappointing posts so far, that seriously question whether their track record is simply a reflection of several lucky picks over the period of a long bull market.

Looking on the bright side of things- may be Marketocracy has stumbled upon another gold mine concept of actually finding even a better way to being able to separate the true quality top investors by requiring them all to blog at least once every two weeks. I can almost see at least three or four people of the current M100 falling off the list, because they don't seem be able to put several good sentence together, which certainly questions their ability to contribute meaningfully to the long run to the well being of the great concept called Marketocracy, other than by the fact of pure luck, even if it lasted for 2-3 years.

I guess my post got a bit negative and wordy at the end, and few my fellow posters that actually kept reading through all the way, will now move their cursor to the negative rating button, but here comes some positivism- some really good posts from the posters I enjoyed reading.
http://www.investorplaceblogs.com/users/jeffkalnitz/2007/09/apples_aaplsteve_jobs_is_crazy.php

http://www.investorplaceblogs.com/users/ahknaten/2007/09/ahknaten_likes_aapl_tables_app.php

http://www.investorplaceblogs.com/users/doca/2007/08/lets_talk_stocks_1.php

http://www.investorplaceblogs.com/users/toma47/2007/09/rate_cut_reaction_strategy.php

http://www.investorplaceblogs.com/users/eileenteska/2007/09/be_true_to_yourself.php

For any questions please feel free to e-mail me at VYazvinski@gmail.com

Comments: View Comments |  Tuesday October 2, 2007