Newsletter Watch: "Best versus the rest" strategy

Marketocracy is a unique website developed by Ken Kam, former portfolio manager and co-founder of Firsthand Funds, that allows individual investors to manage "virtual" $1 million portfolios. Designed with the same restrictions as a “real” mutual fund, the system allows investors to test their skills against other individual investors and compare their performance against their peers and the professional money management world.

Today, Marketocracy has over 55,000 people managing 65,000 model portfolios.

“We have followed over 10,000 stock positions at any one time and more than four million trades,” Kam says. By comparing the long- and short-term performance of each stock picker and their buys and sells, Kam attempts to identify what he believes are “truly the best investors.”

This lengthy introduction to his strategy is important, as it is this analysis of all the trades within these model portfolios that forms the basis for Kam’s specific stock selections. One example is his Stock Alerts newsletter. He begins by analyzing each of the stock purchases made by those individuals in his system whose performance ranking is in the top 25% of all monitored portfolios.

He then compares these buys — on a stock-by-stock basis — with the buys and sells made by the 75% of investors whose portfolios have underperformed. The third step is to find those stocks that are being bought by the “best” while simultaneously being sold by the “rest.”

From the stocks that pass this step, Kam selects his “buy” recommendations, such as these three small-cap stocks, based on this “best versus the rest” approach.

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