How to win a million dollars
CNBC is running a stock trading contest starting today, with a prize of one million dollars for the best performance by May 25th. Signing up is free. Each participant gets a notional $1,000,000 to trade. There are a few non-obvious rules:
- All trades are priced at end-of-day - no intraday trades, and no GTC limit orders.
- No ETFs - this means no indexes, countries, sectors, or commodities, and no inverse trades
- No mutual funds - again, no indexes, country, sector, commodity, or inverse vehicles
- No options, futures, or other derivatives
- Minimum market cap of $500 million as of the starting date - this is probably to keep people from winning by manipulating a thinly traded microcap stock.
In order to win this type of contest, you pretty much have to treat it like a free lottery ticket and make your selections accordingly. There is no risk-adjusted return to consider, and no downside to taking extreme losses. So on a short timeframe, and in a long-only US stock portfolio, you’re looking for something highly speculative that’s going to move a lot.
Before I read the rules, I was thinking that with a million real dollars at stake, someone would game the system by thrashing a microcap issue back and forth, but the $500MM market cap requirement makes it harder. Not out of the question, but probably not worthwhile for anyone in a position to control the stock price.
Since we can’t trade the easily manipulated microcap stocks, I’d look for low float, heavily shorted small cap stocks that have some positive opportunity for event or news driven movement. Some general areas to look:
- Biotech development companies that have regulatory approval or conferences coming up
- Despised companies that are potential buyout candidates
- Disaster / event driven companies, such as avian flu, anti-terrorism, or whatever you can think of
- Fad driven trades. Last year it was ethanol and energy drinks. It might be ethanol and alt-energy again this year
These are all exactly the opposite of good investment or trading approaches, but the contest has a binary outcome - either you win or you don’t. By taking on extreme levels of portfolio risk, you’re trying to increase the variance of portfolio returns during the contest period, in hope of coming up with the highest outlier by the end.
A contrarian approach might be to stay in cash or very conservative stocks, and hope that everyone else makes speculative bets that crash and burn.
Hmm. I just looked at the rules again, and they also have $10,000 prizes for each week’s best 1-week return. This actually increases the incentive for finding a more-or-less binary, news-driven trade each week (such as earnings, court ruling, regulatory approvals). If it works out, your portfolio goes up. If it goes down, it doesn’t affect your 1-week return for the following week.
I was going to run a scan for this over the weekend, but perhaps I should try to dig something up for this week in case something works out.
Needless to say, this isn’t how one should invest or trade with real money.
Tags: stock, market, trading, contest, fun, investing, cnbc, risk management
