Trading is not a game of exacts. Perfectionists need not apply. Markets are made up of many irration...
Kam: The "Best" and the "Rest"
05/28/2004 12:00 am EST
"Over 70,000 people on Marketocracy run virtual stock portfolios," notes Ken Kam, CEO of Marketocracy and portfolio manager for its Masters 100 Fund. “We then base our research on the activity of the top 100 portfolios based on their short and long-term performance.”
“If you’re serious about becoming a better investor, we believe our approach can help you. Like any skill, you have to practice at investing to become better. But nobody wants to risk real money when practicing. We’ve created a website with the most realistic stock market simulation. You can manage up to 10 stock portfolios and try different investing ideas and strategies and it’s free. This gives you the opportunity to make lots of 'virtual' trades and provides portfolio management tools that help you discover your investing strengths and weaknesses. If you just focus on the kind of investments you’re good at and stop doing the ones you’re not – you’ll become a better investor. The idea behind our approach is our belief that no single investing strategy or style works all the time but generally, something in the market is working. The key to consistently beat the market is the ability to change styles and strategies as the market changes.
To help provide ideas, the monthly Marketscope newsletter reviews the changes in the m100 portfolio (which is based on the combined activity of the top 100 performing virtual portfolios. In addition, its Marketocracy’s Stock Alerts report issues strong buy recommendations based on the comparative trading activity between the best (the top quartile) investors from the rest. When the 'best' investors are buying a stock while the 'rest' are selling – that is a strong buy. Here, Kam highlights recent noteworthy ideas in the health care and gold arenas:
"We continue to like the health care sector. One advantage of investing in this area at this time is that the sector is, for the most part, unaffected by changing interest rates. The opportunities are still significant in this sector, primarily because of demographics: as the baby boomer generation ages, more and more money will be spent on drugs and medical procedures. The FDA's recent track record of getting drugs on the market with less obstruction has also been a positive trend for drug companies. Consolidation also continues to provide opportunities for smaller companies to have their intrinsic value recognized without waiting.
"Commonwealth Biotechnologies (CBTE NASDAQ) provides basic research services in the general areas of protein/peptide and DNA/RNA chemistries. As the shares fell from nearly $10 share in mid-April, the best investors began adding to their portfolio. At first, the top group added roughly 7% more shares of CBTE to the portfolio in the third week of April. However, in the recent 2 weeks, the best accelerated buying of CBTE by adding 34% to their position. During the same recent two week period, the rest decreased their holdings of CBTE by 5%. VaxGen Inc. (VXGNE NASDAQ) is a biopharmaceutical company focused on products for the prevention and treatment of human infectious disease. The best increased their position by nearly 3 times its original size, raising their stake by 176% over the last 2 weeks. This comes just as VXGN's share price has fallen to under $15. Meanwhile, the rest sold down their position by 1%.
"Currently, the largest health care holdings of the m100 are BioCryst Pharmaceuticals (BCRX NASDAQ) and Synovis Life Technologies (SYNO NASDAQ). Biocryst is a biopharmaceutical company with a core competency in structure-based drug design. They have several drugs in various stages of clinical testing, with the possibility of getting an accelerated approval by next year. They have $1/share in cash, and a low burn rate. Wall Street analysts are just beginning to 'discover' the company, and such exposure will help the stock appreciate to fair value, which could be in the $20-30 range. Synovis is a medical device firm that makes implantable biomaterial products used in surgery and micro-wire components used in different types of implants. The stock was at $30 in September 2003, and has been beaten down to $15 due to increased competition, but we feel the valuation is now too low. The company has an attractive PEG ratio of 0.8 and price-to-book of 2.4. Revenue growth over the last 12 months has been 45% and earnings growth has been 64%.
"The m100 continue to like the materials sector and made more purchases - some in gold and some in the non-precious materials industries such as steel and commodity chemicals. Our top materials holdings include two gold companies, Golden Star Resources (GSS ASE) and Durban Deep (DROOY NASDAQ), and one silver company, Silver Standard Resources (SSRI NASDAQ). GSS has one of the lowest P/E multiples in the industry and promising exploration activities in South America. DROOY has an enormous resource base that can be tapped at higher Gold prices. SSRI is currently not a producing company, which is a positive thing given that silver is at historically low prices.
"In addition, Royal Gold (RGLD NASDAQ) is rated a strong buy. The company is engaged in the acquisition and management of precious metals royalty interests. Royalty revenue is generated from mining operations in the United States and Argentina. Royal Gold's share price fell steeply during April, but the best held their position in the company unchanged through April 26th. Since that time, they've increased their holdings in the Gold miner by 16%, bringing the company to within the top 4% of total portfolio holdings. At the same time, the rest decreased their holdings in RGLD by 6%."
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