If you’re anything like me, Stock Rover will bring out your competitive spirit. I am an intern at Stock Rover for eight weeks this summer, along with two other college students. As a way of testing our investing know-how, we pitted ourselves against each other in a stock portfolio performance contest.
The rules of the contest were simple. Each of us had a hypothetical million dollars to invest. We had to buy at least five stocks and be at minimum 95% invested in the market. The winning portfolio would have the greatest Risk Adjusted Return at the end of eight weeks. (Total value at end / weighted 1-year volatility of portfolio).
Winning the stock contest meant bragging rights and $50 at Starbucks. Though I’m more of a Dunkin’ Donuts man, the idea of relishing victory with a Frappuccino struck me as a bit of all right.
Take a look at my portfolio:
As you can see, I decided to play it risky given my extremely short time horizon. I purchased nearly 450,000 shares of a single company, A123 Systems, which at the start date of the contest represented almost 50% of my portfolio’s value. Why these stocks, and specifically why A123 Systems?
My approach was to find stocks priced close to a dollar, with very high trading volume, that had experienced big declines in the past few weeks. I easily created a screener with Stock Rover which compiled a list of stocks matching these criteria.
These inexpensive stocks with high turnover have extreme volatility. Their recent sharp declines might position them for a big short-term bounce—all I would need in an eight-week contest. This strategy could backfire for big losses, but as the old adage goes, big reward comes at big risk.
As you can see in the quantity column, I bought only one share of a few stocks to fulfill the 5-stock requirement, and BPAX, DANG, and KITD as a small cushion in case A123 turned out badly. A123, a lithium-ion battery manufacturer, had been down 97% in the past three years and had F ratings from Morningstar. Despite its horrendous fundamentals, I was encouraged by how A123’s price had moved during the couple weeks before the contest.
See for yourself:
What I saw was an oscillating price with a large difference between peaks and troughs. Judging by the end of the period, it seemed that A123 was at or close to the trough of a cycle. Focused on the prospect of a major short-term rebound, I ignored its fundamentals, and invested half a million dollars.
About a month into the contest, A123 had appreciated to the tune of 48%, placing me comfortably ahead of my fellow interns. But now, I feel like the captain of a distressed vessel, enduring the painful duty of being unable to abandon ship. Just two weeks before the end of the contest, A123 has sunk 21% off its starting value. My bounce had happened, and had quickly turned into a deep trough. Had I not been bound by the time horizon of this contest, I would have sold and enjoyed a nice profit.
Though battered, I have hope—there is still the chance the cyclical pattern gives me a rebound just as the stock contest is ending.
Though to be honest with myself, I probably won’t be indulging in iced lattes and blueberry scones. But, then again, this way I keep my loyalty to Dunkin’ Donuts.
Disclaimer: While every now and then I enjoy a Boston Kreme from Dunkin’ Donuts, I have no financial relationship with Dunkin’ Donuts , or for that matter, any other stock mentioned in this post.