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Here are three systems that folks seem to use that have no correspondence to the real risks and rewards of investing. None of these has much appeal for me personally. But then again, I am probably handicapped by the fact that I believe that just because you can take an advantage does not mean that you should.

 

1. Reverse Dividend Capture

CAPS does not pay dividends. When stocks pay out dividends, the stock price corrects after the ex-div date to reflect the fact that the company has paid out cash. So if a stock pays out a $1 dividend to shareholders as of December 1st, 2006, the price that day or the next should drop by $1. The simple strategy here is to pay attention to all stocks that pay large dividends, sell them short in advance of the ex-dividend date, then to close them after the required one week holding requirement has elapsed. (This strategy and its associated moniker belong to BBQPorkMogul.)

 

2. Doubling Down

Accuracy counts for 1/3rd of the score in CAPS. Selling winning positions, then repurchasing them will thus give you to two picks to improve your accuracy, even though it is the same stock. (The same strategy can obviously be accomplished by selling short, buying to cover, then selling short again.) A simple strategy might be to pay attention to the stocks with a lot of momentum and then purchasing them weekly until the price turns against you. If you were to do this broadly over a large group of momentum picks, the fact that the runs typically last on the order of weeks, months, or years rather than just days ought to reward your efforts. Most seem to have recognized this strategy. Some like Eldrehad claim not to have had much success this way, but I wonder if anyone has used it exclusively to let those momentum stocks run. To be sure, when these stocks turn against you, they do so sharply. But disciplined weekly buying and selling ought to produce a favorable score. And even if one wanted to steer clear of the momentum component I just mentioned, weekly buying and selling of selections this way will amplify your accuracy score if you can manage to break the critical threshold of 50% accuracy.

 

3. Sector Picks

Choose every stock that you can find in a sector that you think might have a short term run (as a sector). I believe that you could even create many different CAPS accounts so that you don't even need to have any real powers of prediction. (I may be wrong here but I believe that the cost of a CAPS account is just an email address, which as we all know is free commodity.) For instance, Mr. Caps's choices were exclusively in gold and oil and were all over the place in those domains. I thought he was some kind of goldbug from the predictions he made until I noticed that he had sold nearly all of his selections not much later and locked himself in at a truly high accuracy score. (He still might be a goldbug since his 9 remaining selections are all still just oil, gas, and gold, but currently his accuracy is 90%.) His astonishing rise might be replicated by a new player who wanted to choose a bunch of sectors that he or she thought would spike, where the key decision would be choosing sectors with enough discrete choices so that the number of picks might produce a big enough score in the accuracy column.

 

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