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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: badi_ who wrote (43373)	7/18/2011 4:48:53 AM
From: Paul Senior	Read Replies (1) \| Respond to of 78465

I will be more direct. Yes, of course we know it's theoretical, because you didn't actually make the profit you reported. Because if you actually owned this portfolio and looked at your brokerage statement you would see you do not in fact have the large profit the website portfolio indicates for INSM, and you would not be reporting such a large gain here. This is how I view it: You theoretically bought about 22,000 shares 5-5-10 for $1.04. You put this up in a theoretical portfolio and let time pass. Apparently every time you access the portfolio, the mechanics of the thing cross multiply the number of shares you have entered by the stock price. (That stock price being roughly $12 per share now for the 22,000 shares that were entered. And so the portfolio shows a gain of $244K for this stock.) What happened on 3-3-11: There was a stock split. A 1:10 split, according to Yahoo. That's a reverse split. For every shareholder who had 10 shares before the split they only have one share after the split. Which means where you had roughly 22,000 before the split, after 3/3/11 your portfolio should have been adjusted to reflect that you now have 2200 shares. And that changes the profit picture considerably. Whoever or whatever site maintains the portfolio did not account for the change. Yahoo did though: finance.yahoo.com Not sure how a black swan is defined to everyone's agreement. If the stock had actually gone up 12x in a year ($1.03 to $12), I guess I'd say it would be unexpected or unusual enough to be a black swan. Doubling or more, that's common enough to see, and maybe could be predicted from some stocks. For me, I'd say very nice catch with INSM, but as Yahoo shows, it's no black swan.

To: badi_ who wrote (43373)	7/28/2011 9:35:17 PM
From: Paul Senior	1 Recommendation Read Replies (1) \| Respond to of 78465

It is not at all clear what you are doing. The first portfolio you linked to had 60 stocks, and we were discussing a stock bought 5/5/10. Now the discussion is involving a portfolio of 210 stocks theoretically bought 5/15/10? It seems to me your method will face headwinds, because for it to be successful (and I don't see enough evidence to say it is) - it seems to me to require a large number of picks -- as you have done (210). The issue is that no one will take that seriously. I mean actually put down money on such a large number of positions. Apparently you've realized this, and you've now selected 21 on your site for consideration, and as a representative sample or your best guess. If you have 210 and claim great results for 34 and fails for 22, if that were normative, then of the 21 on your site you might get 3 success and 2 failures. Or maybe just as easily 2 successes and 3 failures. So 21 picks is not enough, because the variation imay be too large for the sample size. In some samples of 21, you'd be a winner, and in some samples of 21 you'd wind up a loser. You apparently get around this by creating a weighting factor -- more money is committed to some stocks than others. That presupposes then, imo, that you can determine which stocks in a list are going to have a better chance of being a positive black swan than the others you've chosen to also be potential black swans. The thing about black swans, as I understand it, is it's very very difficult to predict which are going to be such. And the reader has to rely on a weighting system -- on your site, it would apparently be a reliance on your ability to predict the occurrence of the black swan.