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Hey Gang,

I noticed that some of my worst performers are red thumbs I have on...

RIMM
MSO
BBI
RSTO
BKC
The Gap (forgot ticker)

Obviously, I have other losers that don't fit this category, but I think from now on I will be trying to save the red thumbs for really, really crappy companies - no earnings, no products!, no proven management, sky high valuations... Going short on companies that have fans, revenues, followings seems to offer a lousy risk/reward profile. It seems to me they may rack up some points as underperforms or some accuracy by playing red after a big run. But in going short, I'm saving these for real CrAPS.

I'm tempted to just cut my losses and kill these, but it seems to me the best players almost never end loser picks. Any thoughts on accepting defeat. I think these will probably trend down, but who knows?

Best,

BD
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Dan,

The problem with companies that have real revenues and real management, but simply sky high expectations and valuations, is that it often takes a while for the market to reach the same conclusion that our "jenius" minds have reached already. Witness RHAT as an example, it was crazy overvalued, but only until Oracle stepped into the game, and it missed earnings did the stock plummet.

The CAPS players that shorts these types of stocks has to be a little more patient, and have a little more conviction behind his thesis to obtain winning results. An added bonus is the fact that many of the crap companies are heavily picked to underperform, so shorting wildly overvalued brand names often allow you to pick up massive points on leaders (sometimes, not in all cases).

I think the best players rarely end loser picks because once it goes past -5, your accuracy has already taken the hit. The only risk beyond -5 points is the points, but there is always the chance that unless the story has changed materially, the stock will come back. Since points are somewhat easier to pick up than accuracy, many players leave the loser pick as active because the damage is done to the score, and the potential upside looks better.

Steve



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Hey Steve,

Great points and a great post. Thanks for improving my CAPS game!

This is a really key point. At first I was content to just rob and cheat and steal connive my way into All-Stardom, but to show one can rassle with the big boys, one has to walk some roads alone. Your quote below is dead on.

An added bonus is the fact that many of the crap companies are heavily picked to underperform, so shorting wildly overvalued brand names often allow you to pick up massive points on leaders (sometimes, not in all cases).

Best,

BD
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BD,

Thanks. I'm pretty mixed on shorting brand names in CAPS, as it is very hard to do successfully (duh!). This is obviously a great learning experience, as we have to do some more DD here to be right, as we are walking these roads alone in many cases as you say.

I try to pick brand names with narrow moats like CTRP,TZOO and REDF or stocks that have recently disappointed like RHAT and OSTK as they are often good candidates for further disappointment. Furthermore, once the shine is off the stock, it tends to drift down to a more sane valuation as the mo-mo players/GOOGly eyed bulls's thesis is destroyed.

Stuff like RIMM, CRM, SBUX, AAPL and the like, I just don't want to leap in front of the train, so to speak. I know they are overvalued, but not quite at insane valuations, and the bull thesis business wise is relatively intact.

It's a difficult tightrope.

Steve
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