Tipping Competition for Full CY 2016

[Joe Blow]

Peter, thank you for taking the time to track the competition entries and provide monthly updates during 2016. I sincerely appreciate the effort you have put into maintaining and improving the full year tipping competition and I look forward to another exciting competition in 2017.

I am happy for competition participants (and the ASF community generally) to discuss and decide on any changes to the current competition rules.

I will start the thread for the 2017 competition around the middle of this month to allow a reasonable amount of time for people to decide on and post their entries.

 

[OmegaTrader]

Hi


What is the format???

changes/ no changes??

capital gains only ??

prizes/ no prizes ???

I think dividend included is fair because stock could fall due to payment and that pick could be disadvantaged by failing capital gain f the market discount the price after dividend payment.

And also this is part of the buy and hold strategy is it not?

Wouldn't mind trying.


Since I ended up second last in the monthly in Novemeber
and now last for December competition so far

ahaha

 

[Logique]

If we would like to discuss any changes for next years competition, this month would be a good time.
This is a yearly competition and rewards those that select the best buy and hold for a year portfolio. However a year is a long time in the market and I'd like to propose we allow ourselves some options for taking profits and/or reducing losses during the year.
My suggestion for consideration is to allow a limited number of opportunities to replace a selection, any time throughout the year. This is a longer term competition and therefore we shouldn't allow too many replacements. I was thinking perhaps 4 or 5 only. Four would mean that we'd all have to hold at least one selection for the whole year.
2nd suggestion: No replacements during Nov, Dec to allow for some luck to impact the results in the last two months. This would also prevent the leader from going very conservative to preserve lead.
What do you think?

Hi Peter, firstly thanks for running the comp. As regards the changes, aren't you making a lot of work for yourself by proposing to allow multiple changes during the year? Counting dividends is a bit the same.

In my case, I'd have dumped VOC back in Sept, since which it has almost halved again, so the proposal would have given me a better result. But I'm not sure that's in the spirit of the comp? I'd as soon see it remain as is - pure 12 months buy and hold.

 

[peter2]

Thanks for that Logique. The extra work may take an extra hour (+2H all up). That's no problem.
Divs are a valuable component of long term growth but including them would create too much extra work.

Like you I selected a dud stock and in real life we would have sold them before they damaged our portfolio too much. It seems reasonable to allow for replacements when a company is taken over or delisted. If we allowed replacements for these extremes then we should allow others to replace their duds. The ability to minimise losses is an important part of an investors/traders management.

This is a friendly competition amongst the forum members and allowing a few replacements might keep more interested throughout the year.

I'd be happy to keep the number of replacements low (maybe 2 - 4) to keep the emphasis on the long term nature of the comp.

I'll PM Joe and ask him to start a new thread for the 2017 comp and let him make the final decision on any replacements. We had 31 participants last year. I'd like to see >50 this year. We may tempt a few more participants if we allow a few replacements throughout the year.

(Whoops, just read Joe's post. He's a prophet.)

 

[Logique]

Ok understood, thanks again

 

[nulla nulla]

Hi Peter, firstly thanks for running the comp. As regards the changes, aren't you making a lot of work for yourself by proposing to allow multiple changes during the year? Counting dividends is a bit the same.

In my case, I'd have dumped VOC back in Sept, since which it has almost halved again, so the proposal would have given me a better result. But I'm not sure that's in the spirit of the comp? I'd as soon see it remain as is - pure 12 months buy and hold.

For what it is worth I agree with Logique. The original purpose was to pick stocks for 12 months. If you allow changes during the year then the end result is skewed, unless the loss making stocks are included in the result. I agree with dividends being included but I see this as creating a lot of work for the competition manager.

 

[mcgrath111]

I don't mind how the competition unfolds, however appreciate the hard work you've put in Peter.


This has been a great look back on the year that was.

 

[pixel]

I don't mind how the competition unfolds, however appreciate the hard work you've put in Peter.

This has been a great look back on the year that was.

+1,
Your work is definitely appreciated, Peter. And if you ditched the change option for reason of too much work, I wouldn't grizzle at all. However, if you're willing to allow two sets of reviews during the year, I'm all in favour because it would make the comp more life-like. Therefore, I vote especially for dividends being included.
Anybody and any share can be hit by something out of left field. I know very few investors - none, actually - that buy and hold no matter what. Allowing some interim review, even if restricted to two months and two stocks, would be a fair compromise, leveling the chances for participants with differing investing styles.

 

[skc]

For what it is worth I agree with Logique. The original purpose was to pick stocks for 12 months. If you allow changes during the year then the end result is skewed, unless the loss making stocks are included in the result. I agree with dividends being included but I see this as creating a lot of work for the competition manager.

I am pretty sure the intention is to include the losses made in the results... although the exact mechanics hasn't been discussed.

The simplest way would be to just include the % lost realised in the final tally. A more realistic approach is to re-weight the positions ... but that would leave a bit more work for the record tracker.

 

[peter2]

Thanks for all the feedback, it helps Joe and myself to formulate a compromise.

The number of allowed replacements should be low to maintain the integrity of the year long comp. It's reasonable to allow replacements for companies taken-over or delisted throughout the year. If we allow those replacements then that function should be available for all of us to restrict losers or lock in winners.

I've asked Joe to consider allowing only 2 or 3 replacements any time throughout the year up to midnight Sept 30th. We'll let the last three months play out without any replacements.

I've been reporting our progress monthly and that will be the same next year. This means the replacements will have to comply with the monthly reporting schedule. Selections being replaced will be recorded with the closing price at the EOM that the request was made. Replacements will be started with the EOM closing price.

Calculating the performance including the replacements did require some thought. Re-weighting is too time consuming and an investor can't do this in real-time without paying extra brokerage.

Performance will be calculated as an average across all selections including any replacements.

Let's work through an example. "rambo" (not his real name) selects DSH at the start of the year. During Feb we learn that DSH is being delisted and rambo decides to replace DSH with EEE. During the next month EEE gains 100% and this gain offsets the 100% loss sustained by DSH. Another of rambo's selections has also gained 50% (AAA). The EOM performance of rambo is now spread across six selections not the original five.



Dividends and capital returns: If at the EOY there are two or more competitors within 5% of each other, they may call for dividends and capital returns to be included in the final result. This only applies to the first three places. OK?

Dividends are unlikely to change this years results.

 

[explod]

For what it's worth I do feel that only allowing the three picked for the year puts the focus on company health and fundamentals together with local and world economic conditions.

Most investing is in shorter term trading and the elements I put forward are so important but in the main passed over.

In my own case I did not think a lot on it either, just put up a bunch of gold stocks.

 

[systematic]

I started a reply as soon as the last monthly update was posted, but couldn't finish it at the time.

Has this been decided or are you still looking for feedback?

Very cruisey by nature, I'd normally go along; but as originator of the comp idea in 2015, I don't love where this is going at all.

Which is fine - I'm no sook so if this is the way people want to go; no prob with me. Like anyone else, I'd decide at the time whether to join in the fun or (more likely with the way it's going) dip out this time.

All good - just wanted to ask if we're still consulting for ideas or whether you (peter2/Joe) feel like you've got a fairly solid idea of where it's going?

 

[peter2]

Still looking for feedback.
Systematic you're one of the very few who have all five selections in profit. You've had a great year and are still in with a chance for third. I notice that one of your selections was taken over. Would you have liked to replace it with another selection for the remaining part of the year? Can you pick five winning companies again next year?

 

[Logique]

For 2017, thanks:

APX - Appen
CGF - Challenger
ILU - Iluka
WHC - Whitehaven
VOC - Vocus

 

[tech/a]

For 2017

Can you pick stock others have already nominated?
Or do they have to be stand alone original?

 

[Joe Blow]

All good - just wanted to ask if we're still consulting for ideas or whether you (peter2/Joe) feel like you've got a fairly solid idea of where it's going?

Sorry, missed this post somehow.

I'm going to be starting the thread for the 2017 competition tomorrow so I guess it's a good idea to iron everything out ASAP. The idea, as it has evolved, is that everyone chooses five stocks for 2017 and each entrant will have two or three opportunities to change a stock before the end of September 2017. In order to change a stock, the entrant would have to post the change in the thread and the change would happen on the last day of that month. (i.e. both the exit price of the removed stock and the entry price of the added stock would be the relevant closing price on the last trading day of that month)

I'd be interested in whether people think two or three changes should be allowed. Also, please feel free to make any last minute suggestions. I'm always listening.

 

[Joe Blow]

For 2017

Can you pick stock others have already nominated?
Or do they have to be stand alone original?

As each entrant will have a five stock portfolio, I imagine it will be a hard task to have all original stocks. So I'm happy to allow the odd double-up, as long as they are few and far between.

 

[systematic]

Hey guys,

Firstly, thank you to peter2 for the amazing job you have done with this comp, and of course, Joe for the place to hang out! Hopefully I've said that enough in the past for you to know I really am appreciative, peter 2. I couldn't have done it - without you the comp never would have happened!

Secondly, I'm going to try and be dot point and real brief in this...please don't take it as a curt response, it's just being pressed for time and trying to put something down so that Joe can move on to finalising. Okay?


THE IDEA BEHIND IT ALL
My whole idea is based around being real world. Stuff like the monthly comp can be FUN, totally nothing wrong with that. But this was a "stock picking" comp for people who love stock picking. 5 stocks, 1 year - who gets the trophy? Of course it could be 5 years (but that might get a little boring) or it could be a weekly or daily trading comp. But as anyone who'se been around knows, there's a lot of difference between picking an illiquid stock for a monthly comp (that could never have been bought in real life) and real trading / investing...call it what you want.

To be real world...liquidity should be taken into account (which is why I suggested at the very least a floor of liquidity). In 2016 we had a simple $10k daily trading rule. Any simple scan could provide a list of appropriately liquid stocks - or just use an index (which is why I even suggested the ASX300 - the widest index that still takes float into consideration).

Ideally divs would be included. Often they don't make much difference, but sometimes they do. From memory, last year (or mid-year) magic formula thread...without looking it up I think the divs took the return from something like 12 to 19 per cent!

The 5 stocks / 1 year thing is just a matter of practicality.
1 year: not just in Australia, several countries give tax advantages to holding for one year. That, and the effects of things like brokerage start to get insignificant (whereas we all know people come up with daily trading systems that are profitable on paper only to be destroyed by real world slippage and brokerage).

5 stocks: the more concentrated, the more it comes down to "stock picking". To use a silly example: if we all had to pick 200 stocks...our results would be a lot closer to each other! Again, as a matter of practicality, if some value investors with 9 or even 10 figure funds can have something like half (or more!) of the fund in their top 5 to 10 picks...then somewhere around 5-10 seems about right for the average, small (say, <$10M) individual investor.

So - to some that up...for me it's all about having and holding a portfolio that would have been real-work implementable.

With that, comes a desire for real-world rules. The re-balancing suggested does not make sense to me. Someone losing 100% on DSH doesn't HAVE the funds to re-invest in another stock! (By the way, peter2, yes I had 2 stocks taken over, and I asked to be able to replace them. But in this case there would have been money to invest!)

I just don't see the suggested rules (replacing stocks a couple of times at previously designated points, being able to replace losers with fresh funds that didn't exist etc) as matching the idea of being real-world.

The div idea seems fair enough. As in, on a matter of practicality, using divs only to separate close winners.



MY SUGGESTIONS...

So my suggestions are:

Initial set up
5 stocks with a minimum liquidity filter. I'd make this higher than before. Either use an index, or run a filter for stocks that sufficient weekly volume for a $100k account to easily invest. e.g. $100k portfolio / 5 stocks = $20k per trade. Using something like a rule of no more than a quarter of the daily volume...you'd want stocks that have had an average daily volume of at least $80k

Rebalancing options
- Hold for one year, allowing take over funds to be re-invested (otherwise they'd be sitting in a bank account)...only a slight change to 2015/2016

- Or, if there must be more action, change the comp to something like a rebalance once per quarter. Complete sale and purchase of all stocks (of course, someone can select the exact same again). Everyone resets, once per quarter - but with the funds the've got! i.e. Based on a 100k portfolio, someone who lost 50% now only has $50k to invest. Otherwise you might as well rename it to a 3 month comp rather than a Full Year comp.

- Allow people to buy / sell every month. This is a more ideal situation that is real-world, but from comments made I would imagine this is way beyond too much work. The option here means, allow people to sell out of losers or winners, re-investing as they go (into stocks they currently hold or new stocks)...just as you would in real life. Again, I know this option is too much work...I mention it to emphasise again my belief that this comp should be made to be real-world like.

The best of both worlds?

The final, more unique solution I have that:
- keeps to the spirit of a one year comp (where brokerage becomes negligible and tax is maximised etc)
- whilst at the same time allows for more members to join in and have a go
- and at the same time gives you a chance to lose some and win some(!)
- is kinda more work but not actually more COMPLICATED than the current comp
...is the following idea:

Final Idea

Pick 5 stocks to hold for 12 months.
Only sub-rules are: minimum liquidity filter, takeover funds can be reinvested into a new stock rather than go into 'the bank', divs either ignored, included or simply used to separate close winners.
The twist is...set this comp up at the start of every month (12 comps running)...or if that's too much - at least to start with - how about once every quarter?
Using the idea of quarters...
We have a comp that runs from 1 Jan 2017 to Dec 31 2017, another one with the above simple rules commences 1 April 2017 and runs to 31 March 2018, another one commences 1 July 2017 running to 31 June 2018 and finally another one starts 1 October 2017 running to 31 September 2018.

Eventually we'll have 4 comps running at any given time with a new one starting and ending every three months.

Of course, if quarterly was still too much, it could be done 6 monthly.
Or if it was easy to run and more action was wanted it could be run from the start of every month.


Thanks for listening. At least I've put my idea out for consideration. I'm not the one offering to run it, so as before, I'm happy with whatever Joe and whoever is going to help (e.g. peter2) to make the final call - along with the majority opinion etc...and go with that.

Let me know your thoughts

 

[systematic]

As each entrant will have a five stock portfolio, I imagine it will be a hard task to have all original stocks. So I'm happy to allow the odd double-up, as long as they are few and far between.

I agree. Double ups shouldn't even come into it. It's a one year comp, so anything can happen. We want more players, and the more you have - the more likely people will have the same stocks.
They can always be sent privately if it were deemed necessary (or simply wait until the last day to post!)

Perhaps the only rule should be that 2 players can't have all 5 stocks the same. Any rule more than that is, in my opinion, overkill (due to the 12 month nature of the comp)

 

[Joe Blow]

Very cruisey by nature, I'd normally go along; but as originator of the comp idea in 2015, I don't love where this is going at all.

Which is fine - I'm no sook so if this is the way people want to go; no prob with me. Like anyone else, I'd decide at the time whether to join in the fun or (more likely with the way it's going) dip out this time.

Sorry, I didn't really address this part of your post. My apologies. I think the main reason (in my mind at least) why having a couple of opportunities to change stocks is a good idea is because sometimes unforeseen events can make continuing to hold a stock untenable. For example, a mining stock whose main project has an expected mine collapse. A food manufacturer could have a salmonella scare. A political coup could occur in a country where a company operates. The list goes on and on.

While I realise that the original idea of the competition was to test the ability of entrants to see twelve months into the future and choose stocks that will experience good share price growth during that time, I think adding a little flexibility to the competition won't diminish the amount of skill involved and will only serve to enhance the competition by allowing people to get rid of a couple of duds and hopefully achieve better returns.