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Mechanical Investing
In Defense of Mechanical Investing

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By ejandresen
April 15, 2002

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LeftBlank- I greatly enjoyed your excellent post. If it's any consolation, I used your 15 habits of highly effective rec whores in part to get my blue crown, so you can take some credit for this. For instance, I am replying to your post by starting a new thread rather than interjecting something in the middle of an existing thread.

However, I was left with the impression that you believe the Mechanical Investing board is an evil rec sink or something and that we'd all be better off if everyone there dried up and blew away, leaving the road to recdom clear for those much more deserving intellects on the Consumer Credit and Rambus boards.

In the Motley Fool Investment Guide's Intro, they brag about discovering a great stock called Iomega at $15 before it went to $30 based on the observations and writings of TMF message board posters:

Together we had a terribly fun time making a great deal of money. That was and is the revolution, because somewhere in the midst of it we realized that all of a sudden the world had changed, and changed utterly. The Iomega story (which since has been repeated in our forum many times with other stocks) demonstrates that, thanks to online communication, it is now the little guy investors- not the huge brokerage firms- who hold the most valuable cards. Consequently, over the next decade we think you're going to see Wall Street beating its path to Main Street.

It seems to me that the Mechanical Investing board is one of the last places in Fooldom where the original idealism of Fool.com still takes place. Together, the MI board has had a terribly fun time keeping a great deal of money, primarily because they sold stocks like IOM as they fell off the screens. If Tom and Dave used the MI board as a resource for determining buy and sell points for the stocks in the "Fool port", I'm convinced that the Rulebreakers AND Rulemakers ports would each be worth several million dollars today. God forbid you should actually sell some AOL or AMZN at $70 or $150 per share.

The MI board is one of the best places for Investors writing for Investors. Sure it's fun to learn how to re-use tinfoil on the LBYM board, but if you want to know what's actually going on in Wall Street, what strategies have actually worked over the past several decades, and which stocks in the current market conform to these strategies (and which ones don't), you want to check into the MI board.

Those people earn their recs. One person devised a backtester that analyzes 16 years worth of weekly fundamental data on thousands of stocks, to see if any of your hairbrained ideas have any weight. Another person religiously keeps track of the current results of 132 different screens. Another person posts a weekly list of the top 10 stocks from each of the 132 screens.

One person invented a ratio he thought would be predictive of overall market results. Another derived that ratio each week for the past 62 years. Another person compared those ratios against the results of the S&P 500 over the 3000+ week period and came up with some interesting conclusions. This is the sort of stuff they used to hand out Nobel Prizes for. All these people are asking is a few recs.

I can understand how a newbie can get lost in all this. The writing there tends to be a bit thick and they use a lot of abbreviations that are explained elsewhere in the 120,000+ posts. For instance, I now know to be on the lookout whenever the Arezi ratio reaches 0.6 or 1.5. This is a big bullish or bearish signal for the next 12 months. But I don't actually have any idea what an Arezi ratio is. NOTE TO MI POSTERS: It wouldn't kill you to back up and define your terms once in a while.

Anyway, your general conclusion was that if we could somehow ignore the MI board then the blue hats would be more meaningful. I would draw the opposite conclusion. If you want recs, post something useful to the Mechanical Investing board (they'll let you know if it's not). You already pointed out that FractalWalk reposted an "Improve The Fool" post to the MI board and got 85 recs and counting. On Friday, I posted the exact same post to the MI and BRK boards simultaneously. On MI, the post got 42 recs and on BRK it's all the way up to 3.

Now it is true that the MI board can be a big rec source. LorenCobb once got 144 recs (in the pre-limit days) for pointing out the difference between "loose" and "lose". But in general, you really do have to bring something to the table to get MI recs.

They won't let you just post anything there. You have to have data- lots and lots of it. You can't just say "I like quality stocks selling for a discount to intrinsic value". You have to define quality, define intrinsic value, define what an adequate discount is, and test whether or not your system would have made any money over the past 15 or 20 or 50 years, present all your data and let everyone draw their own conclusions.

I can understand why the MI board might take a little ribbing here and there for being so densely packed with numbers and data and strategies and such, but I believe it is the purest Investment part of this entire Investment site. It is one place where Investors are disciplined, rational, skeptical, inquisitive, studious and helpful. It is well worth it to study the board and see what really goes on there, if not to protect your entire portfolio, then at least to make good use of your $29.95 membership fee.

But I can also understand why someone might be bent out of shape simply because an analysis of Value Trends over the past 50 years in 2 different stock universes got more recs than their post about how they named their pet.


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