Firstly, what is it? It's a report showing which of the Cashback Investment Club members have made the "best" decisions, based on gains/losses on the shares they've voted to buy or sell
Why have one? I think there are several possible benefits, including:
- General fun/interest for club members (enough reason in itself!)
- Additional incentive for members to make considered decisions
- Learn from those who make the best decisions (and also those who don't
)- Potentially attract the interest and even participation of non-club members
From my own point of view, I want it to be fairly simple to maintain, automated as far as possible. But the algorithm behind it should be sophisticated enough that it gives a reasonable reflection of who would have made the most money if they had backed their own votes with their own money. I suggest it should apply the following principles:
- Based on every standard buy/sell decision we make (usually a straight choice between 3 stocks)
- Tipsters judged on the percentage gain/loss of the stocks they voted for versus the other two alternatives (i.e. not weighted according to the actual amount invested by the club)
- For the purpose of calculations, the loss attributed to any one stock should be limited to the club's agreed stop loss (usually 20%)
- Tipsters must have voted on a minimum number of decisions before appearing in the table (e.g. 3 in the past 2 years). This is to stop newcomers who make one "lucky" punt from being propelled to the top of the table
- Decisions should "age", such that more recent votes carry a greater weight than older ones. This is to encourage people to "recover" from bad decisions and acknowledge that we ought to be learning from our mistakes. It will also encourage ongoing participation from those at the top
Here's an example of how it might work....
This does beg the question of how long we allow before declaring a cut-off point. i.e. when we finally stop taking notice of price movements. For simplicity, I suggest we use a standard time period which reflects the average time we tend to hold a given investment (I'd suggest somewhere between 6 and 12 months)Let's say we hold a vote on which one of three stocks we want to sell; Greene King, United Utilities and Aviva. The baseline for each will be the respective share prices on the day that voting closes. Which of these three the club actually votes to sell is irrelevant for the purposes of the Top Tipsters table - it's all based on what you voted for personally. We monitor the share price of all three and update the table accordingly. So if you voted for United Utilities, and over the next few months it's price drops by a greater percentage than Aviva and Greene King, then this will improve your position in the table.
I'd also like to propose that the table should include non-members, so we can capture the interest and expertise of those who are unwilling or unable to actually invest money in the club. To facilitate this, they would be able to vote on our polls but of course their votes wouldn't actually count towards our decisions
Thoughts please!
