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 | summary The authors claim 1225 no-loss round-trip trades over a 26 month period. They claim to never sell their losers. Unfortunately at the end of the 26 month periods they have a basket of incredible losing stocks that "won't go home" tying up an incredible amount of capital. In the two years since the book was finalized, in May 2007, several of those stocks have "gone home", but the losses from the rest eat up a third of their profits over the two years. Pass on this strategy unless you have a really large account. And even then, their actual returns aren't that impressive when the losses are factored in. |
March 12, 2009
The authors claim 1225 no-loss round-trip trades over a 26 month period. They claim to never sell their losers.
They relate the experience of selling a dropping stock just before it starts to rise again. Who hasn't had this experience. They claim to have made a whole strategy based on this. They also claim to grab lots of small profits, just $40 or so each time, and they never sell until the stock turns a profit.
You have probably wondered about this strategy for yourself when you sold a losing stock just before it turned around. That's why I say it's beguiling.
They even give spreadsheets at the back of the book to supposedly back up their claims. What they never tell you was the total size of the account they were trading, or the number of losing shares in their account at the time the book was published.
It will take you an evening to figure out what they could have easily told you about how bad their losses are. However if they made it easy to figure this out in the bookstore, no one would take the book home.
There are no good numbers on their actual account size, but I estimate it at $250,000.
Unfortunately, if you closely analyze the data in the appendix, you will find at the end of the 26 month period covered in the book, they have a basket of incredible losing stocks that "won't go home" tying up an incredible amount of capital. In the two years since the book was finalized, in May 2007, several of those stocks have "gone home", but the losses from the rest eat up a third of their profits over the two years.
This is one of the few books where I wanted to take the book back to the bookstore for a refund. I felt incredibly mislead after I did the analysis above. However, I felt like my skills as a trader must be improving, I was happy I was able to spot the flaw in their idea, and quantify the flaw, and realize I can't afford to follow their style.
http://www.bobsgear.com/display/stocks/Book+Notes+-+Contrarian+Ripple+Trading
