Where was this guy when I had 83 consecutive winners?

[mrmarket]

http://www25.brinkster.com/ranmath/stocks/mrmarket.htm

Mr. Market
A fallacious stock market strategy
Here is a story that has features in common with John Scarne's The $400,000 Roulette Win, which is a story about a high roller using a fallacious roulette system and winning, not because of the system, but because of good luck. Mr. Market is using a stock trading system that he thinks is yielding him high profits, when indeed he is just about breaking even in a very strong bull market. The flaw in his system is quite obvious to anyone who knows the most respected rules of trading, yet it escapes its user and many of his readers. The rule he is breaking is to cut his losses quickly and let his profits run. He does exactly the opposite.
Mr. Market is an amateur stock speculator named Ernie Barsamian. He is a chemical engineer and also a graduate of the Wharton School of Finance. He sets a modest price target at about a 20% advance for his new trades and liquidates if that target is reached. If that target is not reached he merely holds on to the position regardless of any loss. All that keeps him in business is that he has three successful trades for each unsuccessful one.

On his home page he lists 30 successful trades since March 11, 2004, all liquidated at gains ranging from 15 to 20 per cent. Also listed are ten unprofitable positions, still held with losses of from 7.9 to 71.4 per cent. The worst of these is MFLX, which he bought on March 6, 2006 at near its all-time high of 60.5. It failed to reach his price target of 69.7 and he still holds it at 17.3. He updates his results about once a month and his latest update shows further declines in his losing positions. Apparently he will take no action unless these stocks recover and reach his arbitrary price target. We cannot calculate the rate at which he is losing money in this way because we don't know the size of his position in each stock; but as an approximation, if he loses all of the capital invested in his losing trades he still will have recovered 90% of his capital through his winners. If he loses only half he is ahead by 2%.

It is easy to see from Mr. Market's first table on his home page updated July 23, 2007 that his average current loss on his losing trades is 42.6%. Let us inquire how much more he could have made on some of his successful trades if he had not been content to take a quick profit:


7/27/07
Stock Sold at Went to Current price Comments

PDX 35.04(1) 60.35 54.99 Still worth holding

DECK 31.97 107.78 107.78 Still worth holding

SPF 30.36(1) 50 15 Eventually a loser

MCRI 21(1) 33 31

CMN 29 33 14.96 Got out in time

CME 259.67 600 556.50 Maybe should be sold now

DW 22.14(1) 38 33.75

(1) Adjusted for 2:1 split


These should be enough to prove the point that Mr. Market passed up some good profits by selling his winners too soon.
Mr. Market's biggest error is in his evaluation of his performance. He advertises:

I have 30 consecutive profitable trades of 15% or better. How is this possible? Every day there are hundreds of stocks setting new highs, no matter what happens in the overall market. Many of these stocks are still at very reasonable valuations. Afraid of buying stocks at their highs? Think of it this way: a new high is really a future floor for companies with solid financial underpinnings. Quantitative momentum modeling makes it easy to identify stocks that can continue this upward momentum trend. I am $$$ MR. MARKET $$$. I AM HUGE!!!
First of all, it is not correct to say that every day there are hundreds of stocks setting new highs, no matter what happens in the overall market. Every day the number of new highs and new lows are reported in the financial press. At the start of a bull market there will be a few new highs. When a bull market is well underway there may be over a hundred new highs on the New York Stock Exchange, but not more than two hundred. During a bear market there may be no new highs and many new lows. We are talking about new highs and lows in a 52-week period.
He has 30 consecutive profitable trades merely because he has not liquidated his unprofitable ones. They remain in his portfolio and continue to lose money. According to the tables on his home page he has not closed a position at a loss since April 5, 2004 although he has ten losing positions and some of the losses are considerable. Although he has three profitable trades for every unprofitable one, one must bear in mind that we have been in a very strong bull market since 2003.

It is interesting to compare Mr. Market's style in self-evaluation with Warren Buffett's. Warren Buffett recognizes his unprofitable trades and even apologizes for them to his shareholders. Mr. Market merely sweeps them under the rug. Warren Buffett is a winner because his figures add up. Mr. Market thinks he is a winner merely because he doesn't add up all his figures. At the very least, Mr. Market's financial practices represent poor accounting that would not be tolerated if he were handling other people's money.


Mr. Market's Stock Picking Forum
Mr. Market's Home Page

[billyjoe]

Mr.Market,
This guy is really full of crap. If he did his homework, or DD, he'd know that all stockpickers have good and bad streaks and focusing on a bad streak doesn't do you justice. If he had studied another time span, he'd report that you must be a billionnaire since every selection hits 15%. On one hand he criticizes the huge one for failing to sell losers while also criticizing for failing to hold for larger gains. I had a better understanding of the model after studying your site for 10 minutes. He also doesn't take into account the scores of stocks that were down 15% or more and went on to be great winners. This totalled approximately 40% of the last 90+ sales. He shouldn't right about a subject in which his knowledge is so limited. I have some advice for him: "DO YOUR HOMEWORK!"

-----------billyjoe

[Websman]

That dude sucks!

F*** him!!!

[Websman]

That dude sucks!

F*** him!!!


Ok...maybe I'm being a little too harsh.

Let me just state that the VTP does not approve of anyone slamming Mr Market.

[B.J]

Ok...maybe I'm being a little too harsh.

Let me just state that the VTP does not approve of anyone slamming Mr Market.

No, Webs, I agree with your first instinct.

Although I, like the author, utilize, and agree with, the strategy of cutting losses short, it's inappropriate to say the $$Huge One$$ "sweeps his losers under the rug". If this was the case, he would not completely disclose all his holdings, including purchase price and date.

Like Ernie says, if you win 83 (and now 31) in a row, while losing only a few, and each of those winners CLOBBERS the market, then obviously, he's way ahead of the game. If he wasn't beating the market, he would probably be tweaking his system.

[mrmarket]

Looks like he took his page down. Too bad, I could always use a little backtesting.

[IIC]

Ernie...I'm interested to know what your overall record on closed trades is since you started this system...I recall you were at 40 something back when I joined your Yahoo club...it was May 2001 or 2002???.

I'm guessing you are something like 250 - 25.

[mrmarket]

Ernie...I'm interested to know what your overall record on closed trades is since you started this system...I recall you were at 40 something back when I joined your Yahoo club...it was May 2001 or 2002???.

I'm guessing you are something like 250 - 25.


I've been using the system since the early 90's so to go back that far would be kind of hard. I think my number is much bigger than 250. The number of losers sounds about right.

[IIC]

I've been using the system since the early 90's so to go back that far would be kind of hard. I think my number is much bigger than 250. The number of losers sounds about right.


Oh...I didn't know you'd been using the system so long.

Have you found that it got tougher after 2000?...I know I had to start making adjustments after the big crash...Before that I was using the same basic system for over 20 years...thx...Doug

[wlicht]

No, Webs, I agree with your first instinct.

Although I, like the author, utilize, and agree with, the strategy of cutting losses short, it's inappropriate to say the $$Huge One$$ "sweeps his losers under the rug". If this was the case, he would not completely disclose all his holdings, including purchase price and date.

Like Ernie says, if you win 83 (and now 31) in a row, while losing only a few, and each of those winners CLOBBERS the market, then obviously, he's way ahead of the game. If he wasn't beating the market, he would probably be tweaking his system.

I am new to this site. I am intrigued by the 15% gain and then sell approach; but I am concerned with the lack of cutting losses (no matter what). It seems that you yourself have done that based on your above comment. Could you share with me what your percent cut-off for losses is? Also has anyone backtested to see what stocks that went onto 15% gain (and closed their position) actually dropped say 15-20% before that gain occurred. I would be willing to cut my losses and free up the money for newer stocks coming down the road. If only 1-2 stocks per years actually dropped below the stop loss and rebounded to 15% gain, I could live with that - especially if it took months to rebound.

Also this should be backtested to tougher times, like in 2000.

Thanks
Warren

[Karel]

I am new to this site. I am intrigued by the 15% gain and then sell approach; but I am concerned with the lack of cutting losses (no matter what). It seems that you yourself have done that based on your above comment. Could you share with me what your percent cut-off for losses is? Also has anyone backtested to see what stocks that went onto 15% gain (and closed their position) actually dropped say 15-20% before that gain occurred. I would be willing to cut my losses and free up the money for newer stocks coming down the road. If only 1-2 stocks per years actually dropped below the stop loss and rebounded to 15% gain, I could live with that - especially if it took months to rebound.

Also this should be backtested to tougher times, like in 2000.

Thanks
Warren
Maybe you are looking for this: Stops are for wimps (http://www.mrmarketishuge.com/showthread.php?t=562&highlight=wimps). It is a start, anyway :) My conclusion is that stops don't work in this strategy. I should mention that in my Marketocracy fund I am regularly culling stagnant stocks and I also use some kind of a mental stop loss. But I compensate this by letting my winners run; see my reports. I really don't know if it is any better than what Ernie is doing.

BTW, a real backtest is very difficult, since $$$Mr.Market$$$ doesn't use a simple filter.

Regards,

Karel

[billyjoe]

Warren,
I once posted on IBD forums Mr.Market's record after 80 or so 15% gains. It may have been deleted by IBD. Of the first 80, something like 40% dropped below 8%. Many dropped much further before recovering to gain 15% or more. It turned out that using Mr.Market's model would have not worked well if an 8-10% stop loss was used. Maybe the post still exists although most references to the huge one were wiped off the IBD forums.

---------------billyjoe

Correction. In looking back on the "wimps" thread , my post of Dec. '04 tells me that 53.95% of Mr.Markets 76 picks between Jan.2002 and Dec.2004 would have hit by an 8% stop. He's even huger than I imagined!!

[IIC]

Warren,
I once posted on IBD forums Mr.Market's record after 80 or so 15% gains. It may have been deleted by IBD. Of the first 80, something like 40% dropped below 8%. Many dropped much further before recovering to gain 15% or more. It turned out that using Mr.Market's model would have not worked well if an 8-10% stop loss was used. Maybe the post still exists although most references to the huge one were wiped off the IBD forums.

---------------billyjoe


I was looking at IBD forums the other day and some guy posted a question to Mr. M last month regarding a post Ernie had made over 2 years ago...I suppose the guy didn't notice the date of Ernie's post???...Some other guy posted ...in not so nice terms...that Mr. M was long gone from IBD Forums

[skiracer]

I am new to this site. I am intrigued by the 15% gain and then sell approach; but I am concerned with the lack of cutting losses (no matter what). It seems that you yourself have done that based on your above comment. Could you share with me what your percent cut-off for losses is? Also has anyone backtested to see what stocks that went onto 15% gain (and closed their position) actually dropped say 15-20% before that gain occurred. I would be willing to cut my losses and free up the money for newer stocks coming down the road. If only 1-2 stocks per years actually dropped below the stop loss and rebounded to 15% gain, I could live with that - especially if it took months to rebound.

Also this should be backtested to tougher times, like in 2000.

Thanks
Warren

i think one way to look at it is to take all the winning trades and calculate the total gains over the number of trades. then calculate what the person making those trades is still holding in losing positions and the total amount of money invested in those trades and what is left at this time. i would venture to say that the total amount of gains from the trades that met his 16% mark is not that much more than the total amount of money invested in the ones that he is still holding. not the amount that he is down on the positions but the total amount invested in the trades. if that be the case and it is close to a wash or breakeven then all that time spent trading hasn't produced enough to make it worthwhile and could even prove to be a waste of time and effort and use of one's capital. one could say that since the trades haven't been closed out there is a possiblility that the trades could come back to the level they bought them at and even end up becoming winners but that is just hope and the longer the money lays dormant in the losing trades the more you lose in not maximizing the use of your capital.
my own feelings are that leaving money lay in losing positions doesn't maximize the use of the capital. i would rather take the loss, forget about the losing trade, and put the money back into action. but that's what makes a horserace and everyone does what they want with their own capital. claiming one thing when in reality the results are somewhat different is what this is all about.

[wlicht]

i think one way to look at it is to take all the winning trades and calculate the total gains over the number of trades. then calculate what the person making those trades is still holding in losing positions and the total amount of money invested in those trades and what is left at this time. i would venture to say that the total amount of gains from the trades that met his 16% mark is not that much more than the total amount of money invested in the ones that he is still holding. not the amount that he is down on the positions but the total amount invested in the trades. if that be the case and it is close to a wash or breakeven then all that time spent trading hasn't produced enough to make it worthwhile and could even prove to be a waste of time and effort and use of one's capital. one could say that since the trades haven't been closed out there is a possiblility that the trades could come back to the level they bought them at and even end up becoming winners but that is just hope and the longer the money lays dormant in the losing trades the more you lose in not maximizing the use of your capital.
my own feelings are that leaving money lay in losing positions doesn't maximize the use of the capital. i would rather take the loss, forget about the losing trade, and put the money back into action. but that's what makes a horserace and everyone does what they want with their own capital. claiming one thing when in reality the results are somewhat different is what this is all about.

So it sounds like you use a stop-loss approach from the above commentary.... So skiracer, what do you do? Do you use a stop loss? And if so, what percent do you use?

Thanks,
Warren

[skiracer]

So it sounds like you use a stop-loss approach from the above commentary.... So skiracer, what do you do? Do you use a stop loss? And if so, what percent do you use?

Thanks,
Warren

i'm basically short term swing trading setups off technical chart patterns that provide me the highest percentage of an edge that the stock will move in the direction i expect it to. an integral part of the plan and strategy is the placement of a stop loss at some line of support or resistance. usually that stop loss point never exceeds 7%. sometimes i will exit sooner if i don't like the way the trade is progressing. i always let the winners run out to the max moving the stop up or placing a trailing stop once the play is in firmly in the green.

[wlicht]

i'm basically short term swing trading setups off technical chart patterns that provide me the highest percentage of an edge that the stock will move in the direction i expect it to. an integral part of the plan and strategy is the placement of a stop loss at some line of support or resistance. usually that stop loss point never exceeds 7%. sometimes i will exit sooner if i don't like the way the trade is progressing. i always let the winners run out to the max moving the stop up or placing a trailing stop once the play is in firmly in the green.

So do you use Mr. Market's picks when choosing stocks or do you have another screening technique?

Warren

[Websman]

I was looking at IBD forums the other day and some guy posted a question to Mr. M last month regarding a post Ernie had made over 2 years ago...I suppose the guy didn't notice the date of Ernie's post???...Some other guy posted ...in not so nice terms...that Mr. M was long gone from IBD Forums

The VTP has declared that IBD sucks...

[skiracer]

So do you use Mr. Market's picks when choosing stocks or do you have another screening technique?

Warren

i'm in an out of trades on a daily basis usually and make several trades a week on average. i'm sure i trade much more than ernie. sometimes i like ernie's selections and other times i don't. it is really a matter of timing and where his selection stands, technically speaking, on the chart. his picks are all strong fundamentally but sometimes at the time he is looking for an entry the chart may be saying something different to me even if the stock is strong fundamentally.
I have my own scans and screening techniques for finding setups that i like. plus i subscribe to a couple of services that i follow that do provide me with plenty of good leads. there are also many good leads that come out of this forum. if you have been following the posts here at all you must see what is going on. but you must do your own research and dd before jumping blindly into any setup or trade. don't knock ernie's picks. his selections are based on sound research and a proven technique. how he accounts for his winners and losers is really not the question as much as if the setup is good for you dependent on your trading style and strategies. you have to have your own house in order first before you can analyze or knock someone elses. you should also have a firm grip on how you want to trade. ernie's house is in order and he knows how he wants to trade. if he wants to list the winners as consecutive and keep the losers under wraps that's his cross to bear and not anyone elses. everyone who critiques should be able to exhibit some credentials regarding their abilities. ernie has done that where others only critique his scorecard and never seem to be able to show their own credentials and abilities. if you're one of those types you are going to get chewed up and spit out here that's for sure.

[wlicht]

i'm in an out of trades on a daily basis usually and make several trades a week on average. i'm sure i trade much more than ernie. sometimes i like ernie's selections and other times i don't. it is really a matter of timing and where his selection stands, technically speaking, on the chart. his picks are all strong fundamentally but sometimes at the time he is looking for an entry the chart may be saying something different to me even if the stock is strong fundamentally.
I have my own scans and screening techniques for finding setups that i like. plus i subscribe to a couple of services that i follow that do provide me with plenty of good leads. there are also many good leads that come out of this forum. if you have been following the posts here at all you must see what is going on. but you must do your own research and dd before jumping blindly into any setup or trade. don't knock ernie's picks. his selections are based on sound research and a proven technique. how he accounts for his winners and losers is really not the question as much as if the setup is good for you dependent on your trading style and strategies. you have to have your own house in order first before you can analyze or knock someone elses. you should also have a firm grip on how you want to trade. ernie's house is in order and he knows how he wants to trade. if he wants to list the winners as consecutive and keep the losers under wraps that's his cross to bear and not anyone elses. everyone who critiques should be able to exhibit some credentials regarding their abilities. ernie has done that where others only critique his scorecard and never seem to be able to show their own credentials and abilities. if you're one of those types you are going to get chewed up and spit out here that's for sure.

Nope not here to critique Ernie, just to figure out his system and see if it is right for me.

Thanks,
Warren

[skiracer]

Nope not here to critique Ernie, just to figure out his system and see if it is right for me.

Thanks,
Warren

i think you can take ernie's picks and do the research for yourself to make a determination if it's going to work for you. many here do follow him regardless and have done very well with his selections. how you play the trade is your business and there is nothing that says you have to enter or exit at the same point he does. his system is to find the strongest stock fundamentally out of a large batch of stocks and make the trade accordingly giving his reasoning behind the trade. i don't think it's a matter of figuring out his system. he outlines what governs his scans on his home page and that's what he follows. you could do alot worse. if you were to follow and just trade his picks would that be it. are you saying that you wouldn't be making any other trades other than his picks.

[mrmarket]

Since everyone's tolerance and appetite for risk is different, I wouldn't recommend that anyone blindly follow anyone else's investing trades. As I have mentioned here before, I buy and sell other stocks and commodities besides what I write about here. That means that my $$$MR. MARKET$$$ portfolio is only a percentage of my total net worth.

Having said that, my stock picks that I write about are almost always in companies that have growing earnings and revenues AND have valuations that are reasonable. As a result, it is likely that the valuation of the MM portfolio will be trading below the market, at any given time.

[Websman]

I like to put a small portion of my hard earned cash into penny stocks. The little boogers can really fly sometimes...of course they can also crash and burn. Kind of like GOFH did to me recently. jejeje