Australian (ASX) Stock Market Forum

Tipping Competition for Full CY 2016

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Just a couple of quick thoughts:

systematic said:
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).
Click to expand...

I'm happy with the ASX300, but I'm guessing some people might want a wider selection to choose from?

systematic said:
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.
Click to expand...

I guess the big question is: Is this a competition about percentage returns or an actual amount of money invested and the dollar return on that investment? The second is more definitely more real world but far more complex to manage.
 
Joe Blow said:
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.
Click to expand...

I think 5 or 6 people had Santos last year, it wasn't considered to be an issue at the time and dont think it would be going forward.

-------------

Lets keep the $10k daily trading rule and limit replacements to 3, the easy way to do this is with an imaginary 15 or 20K spread across the 5 stocks, get taken over or wiped out then thats the money you have left to go back in with.
 
Joe Blow said:
I'm happy with the ASX300, but I'm guessing some people might want a wider selection to choose from?
Click to expand...

...Definitely. It happened last year, so same sentiment will occur again.



Joe Blow said:
I guess the big question is: Is this a competition about percentage returns or an actual amount of money invested and the dollar return on that investment? The second is more definitely more real world but far more complex to manage.
Click to expand...

I get what you're thinking, but I'm not talking about taking brokerage (or even dividends, if that's too difficult) into account. All the more reason for a longer holding period - makes the brokerage less relevant.

I'm talking percentage returns...with the same idea of a liquidity filter as last year (although I'd argue for a much larger min. liquidity).

It comes down to - tournament play (in any game) is usually optimally played differently to 'real life' play.
This is simply trying to emulate real life reasonably closely whilst still being practical and easy (enough) to run.

BTW, hopefully my previous lengthy post that explains where I'm coming from, hasn't 'disappeared' too much from being on the previous page now. Apologies for length - was meant to be brief!
 
systematic said:
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
Click to expand...

Wow big post and a lot of thought !:xyxthumbs

Where is the line drawn?? That is the question

Do you include capital gains, imputation credits, commissions, volume spreads. What happens if the stock has a massive bid-ask spread of 20-30%.

It's too much. KISS keep it simple MY :2twocents.



1) Initial:

5 stock picks

2) Changes:

Maximum 3 in the year

3) Reasonable test:

Minimum liquidity or other measure, maybe spread could be included

4) Events:

Options to the participant to be decided on a case by case basis by the Administrator
Depends on what the event is....
Participant can choose to sell or hold new stock from a takeover etc etc
Bankruptcy or suspension, well you are finished


5) Challenge rule:

A participant can ask for dividends or recalculation based on reasonable test
ONLY if they are close enough to making a place (1st,2nd or 3rd)
 
systematic: Thanks for your thoughts.

I'd like it to reflect real-life as well, but without real money on the line we can't replicate that.

My thoughts on the competition stock universe:
Most of next years huge growth opportunities are probably not in the current ASX300.
 
peter2 said:
systematic
My thoughts on the competition stock universe:
Most of next years huge growth opportunities are probably not in the current ASX300.
Click to expand...

So_Cynical said:
Absolute certainty.
Click to expand...

Wouldn't that be the case in most years?

I'm just saying, if we want to make it just a little more real life than the monthly comp, then wouldn't we want a small liquidity filter?

Take a small account of 100k. You're only buying 5 stocks, so you're putting in 20k per stock, even with a small portfolio. Requiring 400k average weekly volume seems quite reasonable. Most investors prefer to be able to trade in and out with relative ease.

If someone picks a 10 bagger but you could have (in the real world) only invested 2k in the stock...how is that a show of prowess?
 
I still think it should be a minimalist stock-picking, buy and hold kind of comp.

- I think 2 changes annually in a portfolio of 5 stocks is plenty.
- the liquidity thing is valid, it's mathematically easier to get a % gain on penny stocks - but would you invest in them in real life?
- no issue at all with double ups, such as So Cynical's STO example above
 
systematic said:
Wouldn't that be the case in most years?

I'm just saying, if we want to make it just a little more real life than the monthly comp, then wouldn't we want a small liquidity filter?

Take a small account of 100k. You're only buying 5 stocks, so you're putting in 20k per stock, even with a small portfolio. Requiring 400k average weekly volume seems quite reasonable. Most investors prefer to be able to trade in and out with relative ease.

If someone picks a 10 bagger but you could have (in the real world) only invested 2k in the stock...how is that a show of prowess?
Click to expand...

Ok i get you, i play with small figures and have a couple of 5 bag 2K investments and im pretty happy about that, understand that its not a life changer ~ 10K daily average liquidity, over the last 5 days is fine i think, but im talking about a small account of maybe 15 or 20K.

A larger account of 100K is a different story for me, thinking about i mite still go for a few of the smaller stocks but just expect a staged entry over a week or 3, its not that unusual for me to have a buy order filled over a 2 or 3 week period.

Keeping it real world, many of us im sure only feel comfortable throwing 2 or 3K at a very speculative stock, if it goes to zero so be it, not a life changer.

---------------

Looking at the comp results over the last 2 years, the contestants that do well have 5/5 or at least 4/5 stocks in profit, thats near impossible to do with 4 or 5 highly speculative stocks, when i make my selections it will be 2 high risk, 2 low risk, and 1 medium, most if not all will be non ASX300 stocks.
 
OK, I've given this some thought and I think it's important to keep the competition relatively simple so it is easy to manage. Here are the draft rules for comment:
  • Each entrant must select five ASX listed stocks.
  • No stocks that are trading at less than $0.01 on the day of entry may be entered.
  • A stock must have traded at least $50,000 in value per day in the five trading days prior to entry to be eligible.
  • The competition will run from Monday, 2 January 2017 to Friday, 29 December 2017.
  • Entry prices will be the price at the close of trading on Friday, 30 December 2016.
  • Entries close at midnight on Saturday, 31 December 2016.
  • Each entrant is allowed to change two stocks between 1 April 2017 and 30 September 2017. To effect a change, the entrant must post the details of the change in the competition thread. The exit price of the exited stock and the entry price of the new stock will be calculated at the close of the final trading day of the month the change takes place.
  • If a stock is taken over it can be replaced. The exit price shall be taken to be the takeover price. The new stock must be nominated before the date the taken over stock ceases trading and the entry price of the new stock shall be taken to be the closing price on the day the taken over stock ceases trading.

Please make any comments or suggested changes as soon as possible. I will finalise the rules tomorrow evening when the 2017 competition thread is started.
 
Joe Blow said:
OK, I've given this some thought and I think it's important to keep the competition relatively simple so it is easy to manage. Here are the draft rules for comment:
  • Each entrant must select five ASX listed stocks.
  • No stocks that are trading at less than $0.01 on the day of entry may be entered.
  • A stock must have traded at least $50,000 in value per day in the five trading days prior to entry to be eligible.
  • The competition will run from Monday, 2 January 2017 to Friday, 29 December 2017.
  • Entry prices will be the price at the close of trading on Friday, 30 December 2016.
  • Entries close at midnight on Saturday, 31 December 2016.
  • Each entrant is allowed to change two stocks between 1 April 2017 and 30 September 2017. To effect a change, the entrant must post the details of the change in the competition thread. The exit price of the exited stock and the entry price of the new stock will be calculated at the close of the final trading day of the month the change takes place.
  • If a stock is taken over it can be replaced. The exit price shall be taken to be the takeover price. The new stock must be nominated before the date the taken over stock ceases trading and the entry price of the new stock shall be taken to be the closing price on the day the taken over stock ceases trading.

Please make any comments or suggested changes as soon as possible. I will finalise the rules tomorrow evening when the 2017 competition thread is started.
Click to expand...

Hi Joe, I am happy with all of the above except guideline number 2, Shares greater than the minimum of $0.01. That's fine for the monthly comp but I cant see anyone investing $10,000 for a twelve month sit and hold on a share that trades in the $0.01 - $0.10 range. I prefer that shares be at least $0.10 minimum.
 
$50,000 in value per day eliminates 2 of the stocks i was going to pick, interestingly it would also eliminate 2 of my picks (MXI & APY) for the current comp.
 
I'd like to point out that I'm currently in the lead for the 2017 competition :D

Some of my stocks are doing ok too....ssshh not yet!
 
Joe Blow said:
OK, I've given this some thought and I think it's important to keep the competition relatively simple so it is easy to manage. Here are the draft rules for comment:
  • Each entrant must select five ASX listed stocks.
  • No stocks that are trading at less than $0.01 on the day of entry may be entered.
  • A stock must have traded at least $50,000 in value per day in the five trading days prior to entry to be eligible.
  • The competition will run from Monday, 2 January 2017 to Friday, 29 December 2017.
  • Entry prices will be the price at the close of trading on Friday, 30 December 2016.
  • Entries close at midnight on Saturday, 31 December 2016.
  • Each entrant is allowed to change two stocks between 1 April 2017 and 30 September 2017. To effect a change, the entrant must post the details of the change in the competition thread. The exit price of the exited stock and the entry price of the new stock will be calculated at the close of the final trading day of the month the change takes place.
  • If a stock is taken over it can be replaced. The exit price shall be taken to be the takeover price. The new stock must be nominated before the date the taken over stock ceases trading and the entry price of the new stock shall be taken to be the closing price on the day the taken over stock ceases trading.

Please make any comments or suggested changes as soon as possible. I will finalise the rules tomorrow evening when the 2017 competition thread is started.
Click to expand...

Thanks Joe,
Liquidity is a useful filter, but ... can we make that $250k weekly rather than $50k daily?
Daily could disqualify stocks coming out of a trading halt or suspension, or have the odd low-volume day because they're "tightly held".
As price threshold, I'd rather see the 1c retained as per your suggestion. 10c would eliminate far too many stocks with potential. GXY would have failed in 2015 and barely scraped in for 2016, but look at them now! Or take TON or SOR as candidates for 2017.

As to the rest of the rules - fine with me. :)
 
Just one other thing I think worth adding.

If you wish to close out a holding at a price to lock profit
I think you should be able to.
2 Options (1) Replacing 2 only if you do this at the times allocated --otherwise not replaced

OR

Option (2) not replaced.

So if you get a 200% spike you would in a real world take it!
You wouldn't risk it dropping back!
 
Thanks for all the feedback everyone. Any last minute comments or suggestions about the draft rules?
 

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