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Stock picks August

The 412 algorithm identifies stocks, and some friends give the thumbs up or down on each.

At the end, you will see the list of stocks used for my personal financial investment.
As of 9/25, the results are here:

Confirmed by others
HSON +0%
seems ok
seems ok
XELB +15%
seems ok
LXU +44.89%
classic asset play. Nicely positive cashflow (they’re effectively liquidating their capital investment), though they’re accumulating some interest they aren’t paying for now (capitalizing it at high interest rates).

PFSI +8.85%

RLGT + 29.79%

DFBG +55.49%
OPY +20.43%

GTN +55.49%
GSM -10.53%

CTG -8.09%
have had significant negative cashflow (customers aren’t paying up, usually a bad sign) recently, otherwise ok

AP -9.4%
Most of their equity is tied up in asbestos insurance receivables, and they are being sued over asbestos. There is a decent chance the lawyers will drive them into bankruptcy (they’ve been unusually successful with asbestos, because so many smokers have been near asbestos at some time in their life).

LCUT -11.48%
Made a major acquisition, now has negative tangible equity and a huge inventory. Sales rose more modestly (from the acquisition). Those intangible assets probably have little value, which would make the company insolvent if properly recognized. Only the latest quarter’s results include the acquisition (especially the interest payments).

VIRC +1.04%
Holds 9 months of inventories; inventories are rising fast while sales are dropping. Their inventory exceeds their equity.
CLRO -6.67%
negative cashflow and lots of inventory with dropping sales, but bankruptcy looks like it is a ways off due to limited debt.

Stay away:

CBK -15.98%
controller just resigned, though that might be because they have a new CFO.
They just had a large inventory increase over the last quarter, and their equity is almost entirely their inventory (which is probably overvalued because they can’t sell it).
They look like they will be delisted soon because their stock price is so low, unless they do a reverse split or something like that.

HBP -9.11%
50% increase in inventories over the last year with much smaller increase (11%) in sales. Highly negative cashflow (which has been ongoing for over a year). Their inventory is twice their equity (so a likely inventory writedown could render them insolvent).
Current assets < current liabilities and negative cashflow. EXTREME BANKRUPTCY RISK (don’t you have any bankruptcy risk screens?) PANL - Not available from my broker Want a scientifically proven algorithm that finds the best investments?

math quant

How to measure anything

We can measure anything.

According to Doug Hubbard, author of “How to measure Anything” there are methods and more methods out there for measuring whatever we wish to measure. We take surveys, have a vote, get estimates by experts, or just count.

Does a thing have an effect on you or your company but is difficult to quantify? You can measure its effect with a survey, such as poor employee morale, the effects of losing parking spaces, or the coolness of a CEO.

Does a thing not exist yet but you are working on it? You can ask reliable experts, and even increase their reliability with calibration.

Do you not know what to measure because you want to know what has the greatest effect? You can measure the effects of various things on you as well. How much does the chance of a hurricane effect your house price? There exists tons of tools for just that.

Similarly, in investments, there are measurements for everything. Maybe too many. But whether you find the measurement you are looking for or not, it is out there.


Value Investing

Value Investments in Pittsburgh!
Value Investments

All the ones researched below did about as well as nasdaq over the last 5 years, the 412 Investment did much better at 21% return!

There are many Value Investment Funds available in the Pittsburgh area.

Over the last 5 years, here is what each made each year on average:

Federated Investors “Federated Strategic Value Dividend Fund (R6)” 8.49%

Wells Fargo Endeavor Select Inst +15.57%

PNC Investments: PNC Blanaced Allocation A PBAAX 6.67% (as of 6/30/2018)

Northwestern Mutual “Investment Growth Stock Portfolio” 14.86% as of December 31, 2017
Fort Pitt Capital Total Return Fund (FPCGX) 5 year 14.94% as of October 31, 2017

Nasdaq Index fund 15% over last 5 years
My system 21% over last 5 years!

Nasdaq (^IXIC) made 15.31% per year over last 5 years – as of 7/1/2018

The market’s performance can be improved upon. If you are looking to do this, you need a financial advisor who is a quant, who is a computer scientist from CMU, who has worked with others from CMU, and who understands the market fundamentals and what can be done to improve it.

Think about a profitable investment you had, maybe you invested in Apple or Coca Cola. What made you pick that? Think about an unprofitable investment you had, what made you pick that?

In working with thousands of stocks, they can be ranked, they can be graded, and buying those at the top of the rankings gets better results than an index fund, both in backtests and in real life investments. It requires us to relax our need to prove ourselves to be the smartest and best prognosticators, and focus on what each stock actually is: an investment that will help the company and
us if we look at it correctly, not just a way to make a quick buck for ourselves. What do most people look for in stocks that misleads them?


These are correct, but mastering the art of looking for Trustworthy companies is surprisingly easy. Most companies are not full of frauds, their leadership aren’t lying about their results!

To get to a better state in the market, we just need to identify ahead of the market who those bad actors are, and the ones with good numbers who are not them… those are the best investments, the
ones who need investment the most. They have the best value. Like premium clothes on the clearance rack, they need to be bought, but also, they are good quality. They may be lumped with bad quality items, but they are what we most desire, and what needs to be bought to most as well.

Want a scientifically proven algorithm that finds the best investments?


Investments you should not know

Some forms of trading out there may drive you mad, and your portfolio either sky high or to zero.

Short selling means you will buy a stock and “lend” it to some other fellow. You are sure the stock is overvalued and will drop soon, so you lend that stock to somebody else and wait to buy the stock back at a lower price.

Options are a gamble on whether a stock price will go up or down in a given time. They have names like “190621C00195000-AAPL-CALL”, which means you buy the right (call) to buy a share of apple (aapl) for $195.00 ($195.00 strike price) which will be available until Jun 21 2019. That has a “bid” and “ask” price on the purchase, as well has high fees.

It is more expensive than just buying the stock,  you won’t get dividends, and the option is worthless if the price doesn’t go up.

There are other tricks you can pull: buying companies out of bankruptcy, flash trading, cryptocurrency speculation, and leveraged trading. Those may be covered later.

Investing in the stock market itself is a positive sum game, so long as companies are returning profits. Investing in government bonds are positive sum as well, as long as the government is making tax revenues and the bonds are put into some project good to increase those revenues.

Short selling, options, and other tricks are negative sum games. You are guaranteed to lose money on average, because you have to pay fees and then hope somebody wants to buy the option or short sale.

In order to make money considering the fees, you’d have to have a huge amount of money and risk it all, at least $100,000. That’s most people’s entire retirement, or a good chunk of it.

Worst of all, it is gambling, that money is not helping a company grow or a community prosper. A stock or a bond… gives money to a company that requested it to grow with. A trade like this, just puts money into a betting pool until it is over. That’s why it is a negative sum game. Please consider this when investing.

My purpose in investing is to make you money. The best way to do so in the long run, in a repeatable and tested way, is to do so by also helping others.

Want a scientifically proven algorithm that finds the best investments?

math quant

Performance, and calculations

As you can see on the “Live results page”, the 412 Investments strategy is doing 21% per year as of August, 2018.

This long term investment strategy was developed using the latest technology circa 2013, neural nets, bayesian evaluation, and evolutionary algorithms. It was trained on data gathered from online XML using a system developed by a google engineer. This system works, and it has improved my own private wealth over the last 5 years.

This working system is my recommendation for anybody willing to take a medium risk and get a maximum return.

Furthermore, it has the property of being helpful to the market, while making more trades than a standard index fund. It is an investment solution based on “value investing”. That means that the undervalued stocks picked are not getting sufficient investments today. This investment strategy helps others do better as we invest in them, a positive sum game.

If you had invested in my system in August 1st, 2013 (when it was not yet available to the public, as it is now), you would have made 21.86% gain per year. Even if you chose a 10% annual performance fee, that would have beat an excellent market. How did the market do?

Nasdaq did awesome over the same period of August 1st, 2013 until today, and made 15.31% if you had invested in a nasdaq index fund. Index funds will likely be the second best investments.



Bitcoin, of course, did 104% gain per year on average, but it is not really an investment, and it is unlikely you would have known about it beforehand. There is some shady trades going on, and bitcoin is as likely to gain as drop going forward, down over 50% since its high point.

Want a scientifically proven algorithm that finds the best investments?


What is a fraud?

That is the wrong question. A fraud is a person. It is not a system, or a specific script, or a scheme, or a lie.

Remember the key difference between the “who” and the “what.”
Who your investment strategies are with, and who they invest with in turn, will determine whether you get scammed or not.
Investment strategies are never themselves to blame. It takes a human, a bad actor, to commit fraud. It requires intention.
Have you lost money in your private wealth account this way? Bought a penny stock from one of those “pump and dump” schemes? Did that cause you to drop all stocks and buy only bonds?
Looking for fraud involves three things, traditionally. Horizontal analysis looks for manipulated figures, false numbers. Trends
that don’t make sense. And finally looking for evidence of hiding losses .
But in fraud we should be looking for bad actors!
There is a fundamental difference between fraud and bad value stocks. It is okay to invest in a business that does not do as well as you hoped.
This is the risk we sign up for as investors, and we can diversify (have many investments) to deal with this risk. It is not okay to invest in a
business that was set up to take your money and not return anything regardless of whether there is a real business behind the investment, and regardless of how the business does.
For example, many Chinese companies were not properly vetted by the Chinese government. Even though they reported good earnings, their
stock prices dropped and their accounting was found to be faulty. Not every Chinese company did this however. But in 2015, Chinese stocks collapsed together.
How do keep from losing money when a stock has all the “right numbers” to show a good valuation?
The answer is to look at the people running the company and auditing them. Did they run a company into the ground while claiming good valuations before?
Did their accountants agree to show good numbers before that were not true or verified? It was the auditors and government that failed in China, the value stocks still hold their value and bounced back.
Sometimes, you do want to stay away from a sector with insufficient checks and balances. Such sectors will draw bad actors. But don’t confuse the few bad actors who can ruin a sector for a time… with the good people who are almost always a majority.
In general, if a stock shows good profits, that is good for value investing. The exception is fraud. When we set up your investment solutions, we do value investing while also keeping eyes open for fraud.

Want a scientifically proven algorithm that finds the best investments?