Diary of a Stock Market Loser

Where do I begin? I guess I'll begin two weeks ago, when I decided to chronicle my efforts to claw my way out of the cellar in the Motley Fool CAPS community stock-rating experience.

If you're not familiar with CAPS, it's a place where investors pick and pan stocks. You get graded along with your fellow Fools. That may make the service feel like a game, but in reality it's a growing pool of collective market knowledge. In short, it's an engine that will get smarter as it makes you smarter.

I can use plenty of help. I started out two weeks ago with a 0.55 rating, meaning that 99.45% of the CAPS community had amassed better trading scores. I made a few moves, hoping to improve my position, but it didn't help. My rating dropped to 0.51 a week later.

The good news is that I finally began to make some headway. The bad news is that my rating as of last night was only up to 1.35. I still have 98.65% of you to lap to make it back to being Top Fool.

Making moves and taking names
Since my deadweight pruning last week didn't help, I decided to initiate some new positions this week. My first move was to peg Yahoo! (Nasdaq: YHOO  ) as an underperformer over the next few weeks.

Here's my logic on that particular move. The Microsoft (Nasdaq: MSFT  ) offer is generous, but shrinking in value. What was originally a $31 a share deal -- half in stock and half in cash -- is now worth just $28.87 a share. You can work the math at home. Just multiply the price of Microsoft ($28.12 as of last night's close) by the 0.9509 exchange ratio. That means that half of Yahoo! shares will go into $26.74 worth of Microsoft's stock (based on the current price). The other half will be swapped out for $31 in cash. The weighted average is $28.87.

Yahoo! is going to be sorely tempted to balk at the deal as it drops in value. Microsoft has seen its market value take a huge hit in response to the deal, so it's unlikely to make things worse by sweetening the pot. With no legitimate rival bidder, Yahoo! shares should fall if the company passes on the offer, just a little at first, but precipitously once investors realize that Microsoft isn't likely to come back with a better offer.

Another move I made was to peg Children's Place (Nasdaq: PLCE  ) to beat the market over the next few months. The kid apparel retailer was on a roll a year ago when it was turning around Disney's Disney Store franchise, but these days the company is struggling even with its own namesake concept.

However, the retailer revealed yesterday that the company's former CEO has contacted the company about buying it completely. Media reports have the offer at $24 a share. Unlike the Microhoo noise, I see the potential for a bidding war here. At the very least, there appears to be an offer genuine enough to make things interesting.

The other move I made this week was to go long with Ultra Technology ProShares (AMEX: ROM  ) . This is an exchange-traded fund that aims to double the return of the Dow Jones U.S. Technology index. My timing was lousy here. I sensed that tech stocks had bottomed out after the disappointing earnings reports from Google (Nasdaq: GOOG  ) and Apple (Nasdaq: AAPL  ) . I was banking on a sector-leveraged play like this to help me race back up the rankings.

It wasn't to be. I'm seeing some amazing bargains in the technology blue chips, but I get the feeling I may not stick with this one for too much longer.

Things can only get better
If you're following along on my CAPS page, you'll see how I'm doing even before next week's update. I also made my first blog entry last month.

Since we're now waist-deep in earnings season, I expect volatility in my rankings. I have plenty of picks -- bullish and bearish -- on companies that are set to report next week, including Baidu.com (Nasdaq: BIDU  ) , my best-performing pick so far.

Am I nervous that Baidu's report is following disappointing performances out of Yahoo! and Google? Not at all. China's Web market growth is not tethered to this country's dot-com fortunes. If anything, it may be the best thing for the company to prove that it's marching to its own drummer -- a better one.

Between now and next week, I'll see you over at Motley Fool CAPS, hoping to shed my starring role as one of the simulation's biggest losers.


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