Gary

We haven't been checking in on Gary's performance lately knowing that many of his stocks reversed course and ruined his overall performance. Still, suprisingly enough, his approach is resilient enough to beat Buffett. Since Gary chose his stocks 15 weeks ago (on November 3rd), he has lost 5.0% compared to a 27.2% loss for Buffett's Berkshire Hathaway, and an 18.2% loss for the S&P500 index. For the record, we actually like Warren Buffett. He did not swindel investors out of their capital. Anyone working on Wall Street and not blatantly stealing from the investing public is a hero by today's lax standards.

Remember, Buffett is outperforming other big names like Icahn and Kerkorian. All in all, despite "Gary version 1" being a failure of sorts, his performance makes the experiment nonetheless compelling.

What Gary taught us...

Some of Gary's small caps made sharp reversals of trend, while his large cap names remained more stable and predictable. We knew this going into the experiment, and were told by readers that the imbalance was a flaw in the system. We took the stance that "Gary version 1" was allowed to be flawed. After all, he's a chimp. His performance will theoretically improve with human interference in later versions... or at least we hope.

Large cap 3M (MMM) was one of Gary's shorts. It did exactly what it was supposed to do, and probably will continue to. On the other hand, one of Gary's longs, LPHI, did the opposite of what it was supposed to do. It reversed course. LPHI trades approx 200k shares a day compared to MMM's 6 million.

Another lesson from "Gary version 1" is that short term timing is critical. Gary bought his stocks at all points in their channels, paying no mind to short term timing. He spent a long time treading water, or underwater, on stocks that eventually moved in his direction.

And finally, he taught us that when a stock breaks its channel and/or moving average, it should be replaced by a new candidate.

.......

Of course we knew these things going into the experiment, but at least now we have a control for future experiments. We're going to start up "Gary version 2" very soon so we can see if human intervention can get us closer to our goal. And what is that goal? The goal with the Gary experiment is not to create an environment in which we can all poke fun at the "pros" and feel better about our own performance, but instead to create a system that works over time, regardless of market direction. In our opinion, there is very little that is predictable about the stock market. Even fundamentals are sometimes thrown by the wayside, and therefore cannot be trusted. There is one thing, however, that seems to be true again and again. And that's the overall compulsion stocks have to continue in the direction in which they're currently headed. That is to say that stocks spend the majority of their time moving in one direction, and a small amount of their time reversing course.

Our Gary experiment is an attempt to harness some quantity of that phenomenon and package it into a simple system that can generate profits with little maintenance consistently over time regardless of the market's sentiment.