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Author: gelijojapa Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 182  
Subject: Long CAPS 5 Short CAPS 1 Date: 3/4/2009 2:32 PM
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Has anybody tried going long on CAPS 5's and short on CAPS 1's.

Seems to me if you buy a diversified basket of 5's and sell a comparably sized,diversified basket of 1's; you're betting that the 5's will outperform the 1's, and it doesn't matter which way the market goes.
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Author: TMFBreakerDave Big gold star, 5000 posts Old School Fool Supernova Phoenix 1
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Subject: Re: Long CAPS 5 Short CAPS 1 Date: 3/4/2009 10:40 PM
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I believe this is a generally winning strategy, because you're betting on merit-based, forward-looking community intelligence coming from the world's greatest investing community.

That said, there are approximately 1000 5-stars, and 1000 1-stars, so you have to be selective.

The strategy therefore comes down to WHAT you select, based of course on HOW you select.

But I think you're absolutely fishing in the right pond, regardless. --David

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Author: DividerGuy One star, 50 posts Old School Fool Global Fool SC1 Red Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 143 of 182
Subject: Re: Long CAPS 5 Short CAPS 1 Date: 3/5/2009 10:02 PM
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Any chance we'll see this type of strategy on the asset management side?


Ryan

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Author: gelijojapa Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 144 of 182
Subject: Re: Long CAPS 5 Short CAPS 1 Date: 3/8/2009 9:56 AM
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Any thoughts as to how one might go about filtering the 1,000 CAPS 5's and the 1,000 CAPS 1's, down to right-sized "baskets of stocks"?

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Author: PayshnzGrasHpr Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 145 of 182
Subject: Re: Long CAPS 5 Short CAPS 1 Date: 3/12/2009 5:36 PM
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Interesting question. However, I can think of a lot of 5's that look really bad lately, so if you are going to test the theory, you will have to state how long it will take before you can make a valid conclusion.

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Author: gelijojapa Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 146 of 182
Subject: Re: Long CAPS 5 Short CAPS 1 Date: 3/18/2009 7:51 PM
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I would expect the 5's to not be looking so good. But we don't care. We just want the 5's to be significantly less awful than the 1's. And if they're not, what's the point of the rating system?

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Author: Padavona Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 160 of 182
Subject: Re: Long CAPS 5 Short CAPS 1 Date: 12/2/2009 2:17 PM
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Has anybody tried going long on CAPS 5's and short on CAPS 1's.

Not specifically. However I hedge invest constantly, as I really like the stable returns it produces. My goal is always to be market neutral.

One trade I have run for several months has been Long SPY, Short IAT. This is not a recommendation...I've had a winning 6 percentage point spread on it, but I need to determine if it is still a keeper.

I would need a lot more information on the historical performance of Cap selections per rating, to confidently use it as a base for a hedge strategy. Even if I had strong evidence the community could produce out-sized returns, I will still only use it as a screen rather than a mechanical strategy.

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