No. of Recommendations: 111
Since its been a while, and given Jamie won the Feste Award, I thought I'd update an old post of mine. Feel free to add any other resources or posts you feel would be useful. Hopefully this will help anyone new to the MI Board learn what we're about.

What is this Place? I'm Here, Now What?
Doc's Unofficial Guide for New Mechanical Investors, Version 4
(updated 03.01.02)

Welcome fellow fool, to the wild and woolly world of mechanical investing.

Early Fools discovered this area all excited after reading one of the daily Workshop articles, or after reading Robert Sheard's book The Unemotional Investor. The Workshop has closed, Mr. Sheard has moved on. The Board remains.

Some just stumble in, surfing their way through the boards. Many of you have discover us because one of our best has won the recent Feste Award. One or two even claim to have been dropped off by space aliens. However you ended up here, all it takes is an evening's reading to see what all the excitement is about.

"Can they be serious, quoting 30, 40, 50 or even my gosh 60 percent annual returns?" More to the point, How can I get those kind of returns?"

First rule of mechanical investing: "Don't rush into anything!"
(that's worth repeating: "Don't rush into anything!")

Young freshman, you've just stepped off the university elevator and walked right into the Advanced Mechanical Investing Grad School Lunch Room and Belize Travel Agency. Yes, that person in the line next to you was talking about "Optimization Techniques When Applied to Asset Allocation and the Arezi Ratio". Heck he might as well be talking "Subspace Field Equations in N-Space Geometry." (You did know there are twenty three dimensions, didn't you?)

Before you run quickly for the elevator, take a deep breath, then another. Everyone here started out like you. I too was, and still am a newbie to all this. If you're willing to take a little time, some effort on your part, all will be revealed.

"What is this place?"
First post to read is the Foolish Workshop FAQ here:
Its just over a year old, but still holds a lot of great information.

Then check out this post by Dave Goldman, who gives a brief history of the Mechanical Investing Board. (Though over two years old, this post will give you some background on the early history of this community.)

"Data mining? CAGR & GSD? Value Line? IBD? Options! Now I'm totally confused."

"What in the heck is Mechanical Investing?
To paraphrase Peter Kuperman (and others), this explanation:

Imagine that you are the Director of Graduate Admissions at a local college. It's the new year and you have many applicants, yet just 5 spaces for new students. You want those who have the best chance of graduating but how do you pick them?

Suppose you have the historical records for the last 60 years of college seniors. Going over those records, you have found that those people who are English majors graduated 60 percent of the time. You also find that those people who are Science majors graduate 80 percent of the time. Further more, digging through the records you discover that women graduate 70 percent of the time, men only 60 percent. Also, those who go out for some sort of extracurricular activity, graduate twice as often as those who don't.

Ignoring political correctness, and just on the historical records, who would you pick for those 5 slots? Answer: Women Science majors, with some extracurricular activity. Without even interviewing the applicants, you've found a group of students whose chance of graduating is better than the average.

Important note: Not that they will graduate, but their chance is better than the average.

That's what mechanical investing is, the use of historical data to pick the type of stocks which did well in the past, in the hope that they will do better now.

Look at a popular screen called RS-26, and how it picks stocks.
1) Select stocks with Value Line Timeliness = 1
2) Sort by the Stocks with the Highest Total Return for the last 26 weeks. (Called here Relative Strength.)
3) Buy the top number of stocks you chose. Hold for a predetermined period.

There are two parts to a screen. The criteria and the holding period. The criteria picks the stock. The holding period tells us when to sell. Both are purely mechanical and have been derived from historical testing.

"Wow, are they all that simple?"
No, some have more criteria, but by and large we like simple. Simple works. The further away from simple you get, the more likely your future results won't hold up. We call this "data mining or curve fitting". You'll see that term a lot as you read.

You can see a preliminary group of more screen explanations here:
and Part Two here:

Why do they pick the stocks that way?

Some background, the MI community originally went to the Value Line Investment Survey because we discovered we could get past data from them. Not because we thought they were the best at stock selection. Most databases we found had a real problem with dividends, splits and survivorship bias. Its taken the last few years, and literally thousands of hours of volunteer work, to create a pretty complete data base with just monthly data.

This is why you won't see much about stop losses or other methods which need daily prices or data. Not that we think such strategies won't work, but that we don't have data to decide either way. This is important to you as a beginner. You may be new to MI, but may have years of investing experience. If you post a strategy you've been using, the MI community will ask for you to post any historical records. If you don't have any, we may not show much interest.

Please don't take this as arrogance on our part. We have dozens of strategies with historical data showing market beating performance going back as far as 1969. Stick around though. The rigor we apply to our strategies may teach you how to make yours much better.

This is also why when talking about MI you won't see us recommending holding periods of less than a month. Not that shorter holding won't make more money, just we don't have definitive data to support a choice.

So weekly or even daily data will be a while in coming. (We are working on it). The MI database is something fairly unique to the web. Not many online websites and companies can justify that kind of work, just to make it available for free. We can because the work has been done on a volunteer basis. If you'd like to help check out this post:

Once the database was assembled, Jamie Gritton created a program, called "The Backtester" which allowed us to analyze the data and identify those criteria that winning stocks shared.

As an example the historical data said, those stocks with a Value Line Timeliness Rank of 1 do better than those with 2 or more. Same with Relative Strength. Pretty much all the screen criteria have been back tested to pick stocks which do better than the average.
(More about the Backtester in a moment.)

Currently though there is a volunteer workgroup collecting and checking these screen definitions on a splinter MI board, Radish's Roughnecks, here:

Wow, those definitions don't look anything like the first. A second thing going on Radish's Board, is the beta testing of an Excel spreadsheet "RadiScreens", which you can use yourself to come up with the weekly stock picks. An introduction to the spreadsheet is here:

Additionally I'm running a tutorial on the basics of screen generation and Excel here:
(More on these splinter boards in a moment.)

"But do I have to be some Excel wizard to do MI? How do I find out what the stock picks are?"
While the Motley Fool teaches you should understand completely a system you chose to use, and we here in the MI Community agree, you don't have to be able to generate the picks yourself.

Bookmark David Compton's (aka Monkban's) Practical Resources for MI Stock Selection site:

See the first link on the left; Fireballs' Screen Rankings Short.

Fireballs is a fellow fool, who posts the stock selections each week to the MI Board. This post is a service of the MI Community, supported by volunteer contributions, and made available for free. It lists all of the currently regular screens followed by the MI Community. It comes out usually on Friday night or Saturday morning.

Fireballs uses the MI Screen Generator provided by Friendly PC Solutions. This software will generate the MI Screens for you, and from early test versions I've seen, is very easy to use. Hopefully it will be release to the public for purchase soon. For more information:

Notice the other links on David's site. Other volunteers post the stocks picked by different methods and strategies as well. Some have an established history, others are very experimental. Be sure that before you put a single dollar into one of these screens, you understand the underlying reasoning.

You'll find very little sympathy if you jump into Mechanical Investing without investigating further. You will find though a helpful spirit from the MI community to all beginners. We were there too once. Many of the experienced investors here go out of their way to provide information and resources to help you learn these strategies. If you don't understand something, ask a question. If you still don't understand, ask again.
(More about those resources in a moment.)

"Backtest? I keep seeing that on the message board."
Imagine you were the great, great, great grandson of HG Wells. In clearing out the old mansion, you find HG's time machine. What do you do but hop in and travel back. Now the old machine doesn't have the range it did when it was new, so you only get back to January 1986. Out you climb and head to the nearest stock broker with the $1000 in your pocket. But! You forgot to stock up on old newspapers. Which stocks do you have him buy?

Remember the screen RS 26 week? Just give your new broker those simple instructions. He'll check each week's edition of Value Line (which was published then), buy the top 5, and hold them for a year. Then the following year do it again. "Now, I'm going on a long safari in deepest Africa for missionary work, feeding starving children and don't expect to be back for 16 years." You tell him. "Just keep investing that way, and I'll be back." So after some minor instructions like buy Microsoft at $1, it's back to the time machine. Fast forward to the future. When you get here, your bank account would be worth $35,933! Not bad for just a $1000 initial investment.

But maybe you think you could better that if instead of your 1986 broker trading yearly, he traded semi annually. Well hop back into the time machine.

Now Jamie Gritton is not HG Well's grandson (unless there's something he's not mentioned :) For investors though, he's the next best thing. That's what the backtesters are, time machines. It tells you what would have happened if you'd gone back and invested then. They can't tell you what will happen in the future, but they can help you see the way our screens did in the past.

Jamie Gritton's site provides a variety of regular back tests of the basic strategies, "overlap" strategies, screen-of-screens strategies, and blends of screens. He's always changing something, see what's different this week.

For those first using the Backtester, I've loaded a PDF introduction file which you can download. It explains the basics of the backtester.
Look in the MI Tools folder.
(Briefcase is mirrored here:

At the bottom of the Backtester home page you'll see "The Screen Builder". You'll also see mention of this wonderful tool throughout the posts on the MI Board. This tool allows you to create your own screens, discovering for yourself how well they would have done. An explanation of this tool is best left for later, once you've become more familiar with Mechanical Investing.

"Wait a minute, I'm buying a stock because a program told me too?"
The one problem I always had with other methods of identifying good stocks was the subjectiveness of the criteria. With MI, we've already found what we consider good criteria. The screens merely sort the base universe of stocks for those that meet those criteria.

That's the wonderful thing about mechanical investing. You don't have to spent hours and hours researching a company, know their market, or even what business they're in. If the screen picks them, then you buy them. That will be something you have to come to gripes with, if you invest mechanically. Many people don't even know what the company they're buying does. I had a hard time with that myself. Buy something just on faith. Poppycock! But you are not buying companies, you're buying the criteria.

What MI teaches an investor is to have confidence in their decisions, even in the face of market conditions which are giving you losses. Study after study show that if you let your emotions change your investment choices, they will almost always change you for the worse.

Winning investors get rich by finding a good strategy and sticking to it. Even thru those brief periods that their strategy is losing. MI is one such good strategy. IMO one of the best for the regular investor. We don't have the time to spend 10-15 years learning how to identify what makes a money making stock like the pros.

People let fear and greed drive them into bad decisions. They get out of the market just before it comes back, and get in just before it drops. If you learn the lesson of discipline, then you're a lot less likely to make poor decisions.

I can hear you saying to yourself, "I don't know about this?" That's why the first rule, "Don't rush into anything until you understand it. It's your money, you worked hard to earn it."

Some recommended reading: Sparfarke's Post of the Day for Sept 17th:

OK, I understand the concept of mechanical investing, and I'll take it on faith that this stuff works. (For now) Now how do I get started?

Take everything with a good dose of healthy doubt. From "Getting your feet wet in the Message Boards"

sageful words:
"Treat the contributors here the same way you'd treat anyone you'd met for the first time at a party. This is important because anyone can show up to our party: no invitations are required. You shouldn't make an investment just because some stranger (or even a friend) talks it up; you shouldn't treat cyberspace any differently.

The fundamental concept is that you should NOT rely upon the information or opinions you read. Rather, you should use what you read here as starting points for doing independent research on companies and investing techniques. Then judge for yourself the merits of the material that has been shared in our forum."

Background work or "Back To School"
Ask yourself, is a couple of hours a night, 3 or 4 nights a week for a month, too much to ask to help you retire like you want to?

(Helpful Hint: Get yourself a notebook, and a three hole punch. Anytime you come across something worth saving, print it and put it in your notebook for future reference. A warning, you'll fill that notebook fast.)

If you are new to investing, and you haven't read through the Fool School,


Mechanical investing is the big time. Done wrong, the methods described can lose you money. LOTS of MONEY! Take several months getting used to investing first. Don't worry, these great returns will still be here when you get back. If you're comfortable with investing, and can handle a little bit of risk, read on.

The MI Community and the various boards:
As I mentioned, our corner of TMF is more than just the MI Board. We have several boards here on the Motley Fool and several splinter boards in other places on the Web. Let me introduce you to the main ones.
(Others can be found in piz's list of MI Splinter Groups on Monkban's website.)

High School-The Foolish Workshop Board
The Foolish Workshop Board is our beginner and intermediate board. It is where, if you continue investigate MI, you will spend most of your time. The FW Board is for questions and answers of a personal nature. If someone doesn't understand or can't find some information, or wants help and opinions regarding their personal situation, they can ask there.

Most people when first starting out will ask for opinions on their choices in screens and portfolio allocation. Feel free to ask, most of us will gladly give you our two cents worth. Be warned, you'll often get a lot of opinions.

Hopefully you came to this post via the Foolish Workshop FAQ. If not, you'll find it at the top of any post. This is one of the best references you can have in the start of your exploration of mechanical investing. Elan (who used to be TMFElan) is part School Counselor, part School Librarian. His FAQ should go in the front of your notebook, reread it often. You'll see a lot of post by this man. Listen to what he says.

First Assignment:
Read the past 1000 backposts of the Foolish Workshop.

Man, I could hear the screams all the way from the East Coast. I know its a lot but you will get no quicker education, and you won't look stupid by asking a question, just asked 50 posts ago. Going back to the very first post is preferable, but now that we're over 13,000 posts, going back a thousand will get you familiar with the MI community.

Navigation Hint: Look up in the top right hand corner of any post. See Number: box of some number. This tells you the number of the post you're looking at. To go back to number 1000, simple delete the present number in the box, then type in 1000, hit enter. (Or whatever post you need to go to.) Also if you write the post number of where you stop, you can get right back to it.

So you're a thousand back. Now read on

Navigation Hint #2: Look in the top left hand corner of the post. See Investor Roundtable/ Foolish Workshop. It you click on Foolish Workshop, it will take you to the list of posts. Now see below that, Unthreaded * Threaded. Click Threaded. This lets you read the posts together as a thread. Less confusion at first. Later, once you're up to the curtain posts, then use Unthreaded to see the new posts.

You can also collapse the replies to a thread. This will then show you just the first messages, and is a quick way to search for a particular thread.

Navigation Hint #3: Look at that list of posts. See who the author of the top post is. Want to check other posts by that author? Click on "Author" just above the name. It will then place the list in Author mode. On the top right, click "Prev", this will show you the past posts by that person.

"Teacher, I've Got a Question"
Somewhere along the line, you will come to something you don't understand. Before you ask that question, read on for several more posts. Usually if you're having a problem understanding it, probably someone else may be having trouble too. See if they haven't posted your question and received an answer already. If not, then it's time for your first post.

Look in the top left hand corner, see "Post New * Post Reply". Click "Post Reply". This takes you to the Land of Replies, a screen where you can compose your question. At the top is displayed the original message, below is a space for your question.

Netiquette Advice. It is a good habit to get into, to put a small part of the original message at the top of your reply, usually the part that pertains to that question. But how? Simply take your mouse pointer to the part you want to copy, hold down the button and highlight the text you want. Then with it highlighted, look up to the top of your window (either Netscape or Explorer) See the toolbar, Edit, click Copy. Then go down to the question box, put the mouse cursor where you want it (usually at the beginning) and hit Paste (or Control + V). The highlighted text should appear.

Most of us, italicizes the highlighted part. Simple put a < then an I then an > at the beginning, then < / I > at the end (no spaces). Bold is handled the same only use a B.

If your question is addressed to just one individual, it's often better to just email them direct and not clog the board. Simply find a post of theirs and click on the "Reply to Post" link. At the bottom of the text box, there are three check boxes. The default is to post the reply to the board. To send a personal reply via e-mail only, uncheck the "Post to board" and check the "E-mail to poster".

The Mechanical Investing community here at the Motley Fool can be a place filled with learning and worth. Especially worth! You will thank yourself years later for finding it. What the boards are not is a chat board like you'll find on many of the other web sites you visit. A certain level of courtesy is expected. That's not to say you can not disagree with something posted. Just be polite. And remember, don't assume you know "how" that person meant that phrase. Many a flame was started through misunderstanding.

A Personal Note: We all think we are above the occasional rude posts. You'll find though that sometimes you will take a post to mean something entirely different from the person's original meaning. As much as I think of myself as a calm and considerate person, every once in a while I put my foot firmly in my mouth. You will too. Think before you post!

Be sure to read Stan Lewkowicz's lecture notes on etiquette from the recent MI convention. You can find them here,

So ask away. Remember, the only stupid question is the one not asked.

College- The Mechanical Investing Board
Two boards? What's going on here?

From TMFElan's post
My view is that the MI board is the right place for all research, rankings, lists, and other contributions to the "advancement of science" in this area. If you're posting something that you believe is of general interest to this community then I think it belongs on the MI board. That way, people who want to keep abreast of developments know that the MI board is the one place to go. They don't have to browse the FW board in case there's new info here.

The FW board is for questions and answers of a personal nature. If someone doesn't understand or can't find some information, or wants help and opinions regarding their personal situation, they can ask here and get their answer without taking up bandwidth on the MI board.

Of course EVERYONE is invited to read everything on the MI board, assuming they have the time. ;-)

Assignment #2
Go back 1000, (yes, another thousand) posts and begin reading. Now stop your screaming and don't pull your hair like that. It's for your own good.

What this will do is bring you up to speed on what's current on the Mechanical Investing Board (MI Board for short). Take a look at the date. You'd be surprised to see how recent 1000 posts ago are. Maybe you'll consider going back 2000 instead. Lurk for a while, read what's said. Soon you'll ask that first question. And soon you'll be ready for that first investment using a mechanical screen.

MI Splinter Boards:
In addition to making the Guide again available, I've opened a discussion board for the realllllly new beginners here:

I like to think of the MI Community as a college. The MI Board is this lecture hall where the professors teach. The FW Board like the student union building where we all hang out and those of us just starting can ask some of the seniors questions. My board is more like the back porch of the local frat house. Sure we'll learn a lot, but I'm hoping we'll have some fun too. Stop by if you feel a bit shy about wading into either of the "official" boards.

As I mentioned, the MI Community periodically gets together to focus in on a particular task. One such workgroup is Radish's Roughnecks. You can learn more about this board by reading this introduction and update:

The MI Community also extends beyond TMF. Check out this board on yahoo; Yahoo Mechanical Investors Group

We recommend you bookmark that site too. Should something happen and TMF no longer be available, you can find out why at this yahoo site. Also Monkban will post any special announcements on his site.

If you invest in Europe, TMF has a MI community focused on using MI for British stocks. They have a MI Beginner's Board here:
and an Advanced Board here:

Jamie Gritton has a backtester set up for UK stocks which is here

The MICon Board-
I said we're a community here. One of the things we do is get together each year around April 1st. This gathering is called "MICon". The first was held in Las Vegas in 2000. There were two days of great lectures, the notes of which can be found here. They are worth checking out.

The second was held in 2001 in Atlanta. Ken Meyer aka FoolishlyFree who puts MICon together has said 2002's convention will be held again in Las Vegas. You can find out more on the MICon discussion board here:

Some Additional Resources
Now FoolishlyFree hasn't gotten a chance to put up anything from last year's con because he's been in the process of launching his new website - Great Thoughts (at This brings up another resource, "Doc's Unofficial Guide for the New Mechanical Investor".

When opened a few years ago I put together a 180 page report which compiled a lot of the great learning here on both boards into an easily read guide for the beginner. Surprising even me, it was very well received. With the closing of Soapbox it was temporarily unavailable. I'm happy to say Ken is now carrying it on his site. I'd strongly recommend you first take the time to see if MI is something that might interest you before picking up a copy.

Its worth mentioning another ex Soapboxer Mike Seller aka Sux2BeU. Though Mike doesn't post much now (IIRC he's off to law school), he did do a great report on Relative Strength Investing, which is at the core of most of MI. His report and a bunch of great info (including a downloadable stock price database) is available here

The Motley Fool used to post articles on Tuesday and Thursday by many of the same experienced people you see posting on these boards. A lot of gold in those posts. Past articles are archived here by date
and by subject here

A few years back a fool named MindsEye went back and compiled the Mechanical Investing Board's backposts by subject. Have a question on RS Overlap? Go to this index, look up the compilation of posts on RSO and voila.

The search function on TMF Boards is limited to 6 months. In the spirit of helpfulness you'll see from so many in the MI Community, MarkW has set up this search engine:
Which will allow you to search posts back to the beginning.

Well that's about all for now. See you in Belize.

David Trammel aka LAPropDoc
(and if you've read really far back in the posts you'll understand that reference.)

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