The good, the bad and the ugly

Lets assume you have found a way to discern the ranking of the various stocks trading on an exchange.

Lets take the Uganda Securities Exchange as an example.

So the hard work is done, you have valued all the companies on the exchange and given them a
ranking from 1 to say 6. (ok, there are more on the USE but 3 of them have never really traded in years so
we wont include them).

Lets divide them into three neat piles:
1. the ones we need to buy
2. the ones we dont need to buy or which if we have we dont need to sell.
3. the ones that must be sold.

How do we group them into the relevant piles?

Do I hear someone call for a normal distribution? Any mathematicians out there? No?
Ok, lets look to a simpler method.

What marks out of 100 would you need to get as an investor to be really good at what you do?
We know that stock market indexes get an average of about 50% because by defination they are averages yet most investors and scholars agree that indexes are actually quite good. So we know that anything north of 50% is quite good. Lets aim high, lets say 80% is what works for us. This means we only pick the top 20% of the pool.
So far so good.

The bad ... Lets see... say anything better than average we can hold. This means we hold anything else in the top 50%.

The ugly.
Anything worse than average we sell !

In practise with 6 stocks on the exchange.
Buy 1.2 stocks ie the first one
Hold the next two stocks
Sell the last three

So there you have it!
The good, the bad and the ugly !