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@jtempkin     -     Email     -     Articles Brian Dale is a financial advisor at Edward Jones.

Investment 207: Ryan vs Marcel

Brian Dale Articles

“Half a denier for my bloody life story?!”
“You can’t expect to wield supreme executive power just because some watery tart threw a sword at you.”
“Gentlemen, you can’t fight in here—this is the war room!”

It's all fun and games while someone's losing eye

It’s all fun and games while someone’s losing eye

A while back, we analyzed the different investment strategies implied by the Pick of the Week segment on the Brainstorm Brewery podcast. Let’s recap our conclusions from season one:

Marcel and Ryan are classic Alex-profile investors. Their picks traditionally favor low-risk, long-term growth. While they are buy-and-hold investors, they are not buy-and-forget.

Since we previously pitted the two more aggressive crew members against each other, that means we can now see what happens when the two more conservative crew members are put side by side.

 

 

 

Ryan’s base stats:
30-day call rate: 37 percent;
Season-ending call rate : 50 percent
30-day average return: 14 percent
Season-ending average return: 1.1 percent

Marcel’s base stats:
30-day call rate: 70.4 percent
Season-ending call rate: 17.65 percent
30-day average return: 41 percent
Season-ending average return: .89 percent

These results seem at odds with their previous results. Both of our slow-and-steady investors turned in modest long-term gains, but at the other end of the spectrum, they both crushed their 30-day results:

Marcel:
[card]Blood Baron of Vizkopa[/card]: +37 percent
[card]Ash Zealot[/card]: +76 percent
[card]Chandra’s Phoenix[/card]: +100 percent

Ryan:
[card]Chandra, Pyromaster[/card]: +255 percent
[card]Beck // Call[/card]: +100 percent

At the other end, Ryan’s average pick ended up yielding over 50 percent and Marcel’s calls fell to just above positive. This might be indicative of rotation leading folks to make blind shots at cards that are strong but unplayed. Yet even as we see uneven results, there are trends emerging. In Ryan’s 30-day time frames, roughly six out of ten of his picks failed to move upward, but he still averaged 14-percent profit per trade. Marcel’s picks started out strong and collapsed under the weight of rotation, with eight out of ten of his picks failing to gain any profit during the season. But again, the concept of Beta (see Investing 205) is coming into play here. In each case, the losses per trade were kept tightly under control and the gains per trade were outsized, resulting in returns that were much better then expected considering the number of missed calls.

Missed Calls

Here’s a few examples of Marcel and Ryan missing:

Marcel

[card]Firemane Avenger[/card]: +/-0 percent
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[card]Assemble the Legion[/card]: -16 percent

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[card]Whispering Madness[/card]: +/-0 percent
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[card]Detention Sphere[/card]: -15 percent
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Ryan

[card]Sword of Light and Shadow[/card]: -9 percent

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[card]Shardless Agent[/card]: +/-0 percent

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The Good ‘Uns

Compare those misses to the upside on these calls:

Ryan

[card]Mutavault[/card]: +93 percent

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[card]Burning Earth[/card]: -79 percent (this was a sell call)
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Marcel

[card]Chandra’s Phoenix[/card] : +300 percent
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[card]Garruk, Caller of Beasts[/card]: -64 percent (this was a sell call for the paper version)
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As we discussed previously, it is a little difficult to pick one over the other, as Marcel sticks almost entirely to MTGO. In this matchup, though, we see that Marcel seems to have drifted over into Jason’s side of MTG finance. While Ryan has continued his previous pattern of low-risk and value-driven picks, Ryan’s calls were less incremental then before. A gambler (Gordon profile) will more than likely find Ryan’s pick unsatisfying. As for Marcel, his picks were much more aggressive and short-term compared to his previous season. While an Alex profile might have become uncomfortable with the level of volatility this time around, the returns were still with in the range of both Ryan’s and Marcel’s spectrum of comfort.

Good luck always helps

Investing 206: Jason vs Corbin

Brian Dale Articles

Last time, we outlined the environment that these picks were made, so if you haven’t read that article, please do so here. With that out of the way, today we can start digging deeper into how each host’s choices panned out. This time around, rather than compare opposite styles, we are putting the two more aggressive Crew members head-to-head.

But first, here’s a recap of our conclusions from season one:

Jason and Corbin are almost single-handedly building the Gordon psychographic (see Investing 201) from scratch.

Mtgfinance fights need better battle music

MTG finance fights need better battle music

Corbin’s picks tend to be more high-risk and high-reward. Timing was less important than the huge potential for a swing in value. If you prefer to flip short-term specs, however, Jason seems to have this down. His picks turned fast and furious, as he is looking at trends and requests from his customers.

Corbin’s base stats:
30-day call rate: 18 percent
Season-ending call rate: 54.5 percent
30-day average returns: 3.5 percent
Season-ending average returns: 19.9 percent

Jason’s base stats:
30-day call rate: 62.5 percent
Season-ending call rate: 56.25 percent
30-day average returns:19.3 percent
Season-ending average returns:14 percent

Jason Today

Jason starts this season with returns that are similar to his previous results. With two-thirds of his picks going up in the first 30 days, he has constantly been able to predict what cards are going to be hot in the minds of buyers. His picks then drift down through the next six months. Below are a few examples that illustrate some picks that are quintessential Jason.

Ex.
[card]Advent of the Wurm[/card]: 30 day, +25 percent; end of season, -57 percent

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[card]Desecration Demon[/card]: 30 day, +25 percent; end of season, -52 percent

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[card]Boon Satyr[/card]: 30 day, +122 percent; end of season, -44 percent

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After viewing these picks, it’s a wonder Jason isn’t accused more often of manipulating the market. A counterargument could be made here too: when Jason picks a card, you should be looking for an exit within two to three weeks. Think of him as the proverbial canary in the MTG finance coal mine.

Corbin Today

Now on to Corbin. Corbin’s numbers start small and move up over the next six months. This is very similar to his past performance, but as before, the devil is in the details.

Here are a few examples of what makes Corbin’s numbers so wild:

[card]Deadbridge Chant[/card]: -77 perecent

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[card]Underworld Connections[/card]: +258 percent

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[card]Dark Depths[/card]: -83 percent (this was a sell call)
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Corbin’s track record of swinging for the fences is intact. What’s interesting is that more than half of his picks didn’t move in the first 30 days. That’s something like predicting which S&P companies are going to have surprise news next quarter—it’s just that he doesn’t know whether the news is good or bad.

Again, a counterargument can be made here. Such large movements tend to be sustained. Waiting a few weeks may confirm the trend direction that he has called, but it would mean leaving a few dollars on the table in order to reduce your risk. His picks in general have such large swings that missing the first 20% doesn’t hurt you as much as the downswing might.

Conclusions

Corbin’s picks during this round continue to be more high-risk, high-reward. An investor (Alex profile) who fears risk more than he desires gains will jettison Corbin’s picks too quickly to realize maximum profit.

If you want to flip short-term specs, Jason seems to have it down. He continues to focus on short-term “hot” picks. Remember, his picks turn fast, so “leave the last 10% for the next guy.”

Until next time, folks!

Investing 205: Blind Shot Calling

Brian Dale Articles

“I took the liberty of bullshitting you.”
“Excuse me while I whip this out.”
“I have half a mind to join a club and beat you over the head with it.”

Hello, Brainstorm groupies! When last we left our intrepid heroes, we were learning about the investment styles that each host was using to amass his Magic fortune. We learned that Marcel likes to take his time and Jason likes to bang it out as quick as possible. We discovered that Ryan likes to “play it safe” and Corbin is willing to take risk in order get the payoff he is hoping will be delivered by a beautiful amphibian creature.

Have you plied your trades based on their advise? Are you following one of them or all of them? Have you been picking trades based on your own opinion and then using their opinions as reinforcement?

Well, it’s time for a  brand new season, but this time we are dealing with a different environment. In the previous season, the trades were from the release of the fall set until May. We then tracked those picks through the six months leading into the next rotation. This meant that all the picks were made with almost complete knowledge of the cards that were shaping the Standard and Modern formats. This allowed our protagonists to evaluate EV based on the thousand or so cards that mattered and the five or so tier-one decks running though tournament top eights. This gave them the picks that ended up significantly outperforming the market.

But this season, they had the exact opposite situation. Picks were chosen between May and the fall rotation (2013), and then we followed those picks from the release of Theros until the release of Journey into Nyx. Think about that: almost all the picks during this time period were made with zero-percent knowledge of devotion or gods, and half these picks were made before M14 was spoiled! If you don’t understand how hard it is to predict something with missing information, check this out:

Selling low and buying high?

Selling low and buying high?

This chart shows people plowing money into the stock market after it rises (peaks) and pulling money out of the market at the bottom of its cycles (valleys). As you can see by this graph, millions of people who do nothing but try to predict the stock market 24/7 literally bought high and sold low every time!

Before digging into today’s results, I also want to point out something know as The Observer Effect . The Brew Crew began tracking their picks in mid-2013 and I previously went over their individual results in the middle of their “season two” picks. This leads to some subtle changes in their behaviors you may notice as we dig in deep.

During this season, each individual made a different number of calls. This leads to some uneven comparisons if we compared each pick against each other pick. So we are going to instead pretend like you went out and spent $100 on each and every card they said buy, and by coincidence you sold exactly $100 worth of every card they said to sell (If your are spazzing about the math here, please read Investing 201). Then we divided the profits by the number of trades each of them sent your way. There are few discrepancies to sort out as well. If a host said something like “all Modern Masters rares” or “the 99 cards from Mind Seize not named [card]True-Name Nemesis[/card],” we did not include these as picks. Without naming a specific card, we can’t really specify a pick. We’ll consider those calls to be more general guidance and not, strictly speaking, actionable advice. Also, in the few instances where a target price was given, we assumed you followed directions and sold it even if the card price continued to go up afterwards.

Results

Let’s start with some short-term results. First, I calculated what would have happened if you had purchased each pick of the week and then checked the value 30 days later.

Corbin’s picks averaged just 3.47 percent profit per trade, and he only correctly predicted the direction of his picks 18 percent of the time.

Ryan’s picks averaged 14.02 percent profit per trade, and he correctly called the direction of his picks less than 35 percent of the time.

Let’s pause and look at these for a second. Corbin was not able to give the correct guidance over 80 percent of the time but was still able to produce a positive return. His losses were so small and gains so large that his low call percentage was completely overwhelmed by the gains on his hits. Ryan missed his mark two-thirds of the time and still managed double-digit monthly returns. It’s like a pitcher who leads the league in both walks and strikeouts. End aside.

Jason earned an average of 19.32 percent profit per trade and correctly called a card’s price direction 62 percent of the time.

Marcel was able to average 37.01 percent profit per trade and only made a call about 33 percent of the time.

Jason had only one pick that dropped more then 20 percent in the first 30 days and Marcel had two picks that hit triple digits in the same period!

Dear Marcel,

So now we are looking at returns where the crew predicted with greater then 50-percent accuracy what cards were going to rise in the next 30 days. This produced the kind of results that most fund managers would give their left nuts for (presumably the right ones are worth more?). What’s interesting is that each has his own style, but it appears that each is subconsciously using one of two investment concepts: Alpha or Beta (no, not that Alpha and Beta).

You see, when they evaluate their picks, they are not only calculating value in a vacuum—they are calculating your gain/loss potential versus a host of other cards. If five different cards can each go up by 50 percent, the best pick is actually the one with the lowest downside risk (Beta). If 10 different rares are all printed in the same quantity, the one that’s played as a four-of has a higher possible demand and a higher potential price (Alpha).

In the next couple articles, we will explore some longer-term results and see if the Crew has continued its previous performance and patterns. It will be interesting to see if their previous results have caused big changes to the way they see MTG finance. Until next time.

Investing 204 – What is the Value of a Short-Term Pick?

Brian Dale Articles

The Dude abides.

I don’t have to take this abuse from you, I have hundreds of people dying to abuse me.

Well, here’s another nice mess you’ve gotten me into.

Congratulations! You have slogged through a sea of numbers to get here. The last couple Investing 200 articles were short but dense. We broke down each of the Brew Crew’s picks in a sterile environment, compared each against the other, and awarded scores. But what is the value of their picks?

Let start by reviewing the headline stats:

Jason’s 30-day average: 27% per trade
Corbin’s 30-day average: 26% per trade
Marcel’s 30-day average:8.4% per trade
Ryan’s 30-day average: 7% per trade

Let’s put this into perspective: if you had purchased all the picks of any of the Brew Crew each week, you would have increased the value of your Magic portfolio. Combined, they offered over 10% average returns per month!

For those of you who are unfamiliar with the power of compounding interest, here is a year-long example of 10% a month:

January $100
February $110
March $121
April $133
May $146
June $161
July $177
August $194
September $214
October $236
November $259
December $285
Next year’s total: $314

According to Kiplinger.com’s investing tools, the top large-company mutual fund in the last 10 years averaged only 12.56% per year!

Before calling a pick, our heroes try to identify whether it has upside or downside at its current value. Correctly identifying the direction a card is heading is actually more important then its target price. So when it come to successfully identifying that trend, here are their 30-day success rates:

Jason 40%
Marcel 37.5%
Ryan 37%
Corbin 35%

While the results are less then 50%, no Crew member experienced a negative return. Consider what that means to you. Let’s say you chose one pick to purse from each given podcast. Even though your odds of a pick going up in the next 30 days were a little under 50%, the amount a pick could go down was significantly limited and your upside potential was tremendous. In many cases, the guys identify a trend or opportunity correctly, but either identify it too late or overestimate the target price.

These results excluded cards that moved less then 20%. Magic cards have been experiencing significant growth over the last couple of years and card values as a whole are rising a little bit each month. Different websites have spreads that can easily top 20%. If we included the moves under 20%, each Crew member’s success rate would rise to over 60%, but we would be including a lot of statistical static. So these rates are above and beyond the normal incremental moves of the market at large.

It’s important to point out that even with these success rates, each Crew member returned positive results overall. Their percentage losers were all overwhelmed by the gains of their winners. This is a form of “return alpha,” where your gains are higher then other returns in the same risk pool.

” But wait!” you say, “I listen every week and I didn’t get anywhere near that return!” This is where the vacuum of results disappears and is replaced by the reality of your returns. Not only is it unlikely that you bought and sold each pick, they don’t want you to.

I asked Jason and Corbin how they would feel if their picks of the week completely sold out on TCGplayer every Friday:

Jason: “I would be disappointed in our listenership if they blindly followed our calls. We’re giving advice. I think if we were seen as having that much pull it would adversely affect the market in a bad way. I hope we never get that many blind adherents. ”

Corbin: “To be honest, I wouldn’t want this to happen if it would mean that people are buying because we told them to. The goal is not for cards that have flat-lined for a year to then sell out the day we mention them. That should never happen. People should take our advice into consideration, but ultimately make up their own mind on what to buy. I don’t consider my advice ‘good’ if it becomes a self-fulfilling prophecy. I want to help direct people to cards that are showing signs of rising in price in the future, not create hype spikes based on what we say.”

Unless you track every trade and every decision, it’s likely your confirmation bias is causing you to remember only the biggest choices that affected you. It is also likely that you are not giving the Crew credit if they offer an opinion that is the same as your own.

For example, you might say, “I think I should trade these [card]Thragtusk[/card]s away this weekend, but I’m not sure.” Then Corbin says, “I love Merfolk and I cannot lie! Also, sell [card]Thragtusk[/card].” So he confirms your notions and you trade it away. All the while, your memory is biased in a way that you get the credit in your own mind.

Another issue is the card that you avoided because of a sell call. Your card portfolio is better off without it, but you don’t have a line item for “what could have been.”

The next question is how to use the picks. The first thing you need to do is identify your goal (see Sander van der Zee’s Setting Your Goals). Then identify which Brew Crew member’s strength are best aligned with that goal (see Investing 202 and 203). Then have fun. With the raw data put out by these guys, you can run almost any system you want.

For example:

1. If you had bought every pick that Jason and Corbin made, then sold each 30 days later and bought the picks that Ryan and Marcel had made 30 days before, you would have returned over 80% by rotation.

2. Make a list of every card you want a playset of and wait for the buy signal from the Crew.

3. Sell cards you’re not using when the Crew calls a top and buy back in after they drop.

The key principle to remember is that their picks have returned statistically way above average. Your job is to take this information and apply it to your own plans.

So what is the value of short-term pick? On paper, it’s 10%. In real life, it’s somewhere between -40% and 300%. And stories about your triple up, or your unexpected losses…. well, those are priceless.

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