The Scattershot System of Investing

The Scattershot System of Investing

May 21, 2024

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There’s an often-repeated investing mantra out there, and I’m sure you’ve come across it.

Buy a bunch of things all over the place and hope a couple of them pay off.

In other words, scatter a lot of darts across a dartboard and cross your fingers that one hits the bullseye.

The idea is that no one can pick a stock or a system (no one can ever do anything, according to the experts), so the best we can do is diversify our selections across many different areas.

If we do that, say, ten times, one or two will hit it big, five or six will do average, and the rest will burst into flames.

But in the end, the big winners will pay for the do-nothings and dumpster fires.

Does it work in real-life, though?

Let’s take a look.

As I mentioned, I’m currently tracking over 75 different stock portfolios in real time. So I have live data on several different ideas and documentation on several experts’ sage advice.

Back in October 2023, I came across an article about stocks with high Short Interest.

Of course, high Short Interest means that many institutions are betting that a stock will go down.

Since the Meme Mania of 2021, this has been a fun topic for many pundits.

Where’s the next GameStop??

And that’s where this article came from.

Here’s the list from last October on stocks that were hated by Wall Street and had high Short Interest:

What do you see on that list? A lot of companies that were falling off a cliff several months ago, right?

And for a long time, this was the worst portfolio I track.

But you know what’s recently happened: Meme Mania is back!

So there’s a chance this portfolio has turned around. Did it?

Here are the updated results:

And look at that. Carvana (CVNA) has gone crazy and NVAX has come back from the dead.

But, of course, RAD went bust and FSRN is basically at zero.

Overall, an equal-weighted portfolio would be up almost 12%.

Is that good? Not really. SPY is up about 21% in the same time period.

The takeaways?

One, the Scattershot method does tend to work in real life. In a group of choices, a couple will probably do really well, a couple will fail miserably, and most will be blah.

But I prefer picking ten things that appear to have a high probability of working. Instead of just saying, “What the heck, try this!” I would rather try ten things that all might succeed.

That way, there might be a chance that the “blah” ones in the middle do better than average and the bad ones don’t go all the way to zero.

Scattershot with high probability seems to be the better choice.

And we can talk about more of those in future Newsletters.

Talk to you soon.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.