Our contest, although short in duration (9 weeks) is meant to be an investment contest. Some have indicated a preference for more active access to trade their positions. We did not intend to run a trading contest (although that may be something we'll think about for the future), but an investing contest, which requires a different type of approach when building a portfolio. We recognize that there should be an opportunity to adjust a portfolio, and so we do provide one day to trade some, all or none of the portfolio positions. This will occur on November 16th (midnight deadline).
Similar to what we've noticed in the previous two contests we have run, we notice a front runner that has jumped out to a commanding lead right at the get go. The rest of the pack is quite strong, with over 70% of the portfolios entered generating a positive return following the first week!
Let's drill down a little bit and take a look at the top few positions following week one. The TOP SPOT spot after 5 days of active markets sees George F. clearly ahead, as his portfolio has doubled in value. George was quite clever in selecting stocks that were trading at a value of $0.005 per share on October 12th, our pricing day, and all three rose in value to $0.01 per share by the close on October 19th. He holds 3 positions (the minimum required for the contest) focusing on resources (oil and gas extraction and mining). His top position commands an 80% weight in his portfolio.
In Second Spot we have the portfolio of Peter Tr., whose portfolio generated a 14% return. Peter has taken a more balanced approach to his portfolio, carrying 5 positions with the largest at a 25% weighting and the smallest at a 10% weighting. Peter is also focused on resources. All of Peter's positions had an starting value above $1.00 per share.
To round out the top three, Andrew R.'s portfolio generated just under a 13% return following the first week. Andrew has a 3 position portfolio, with a slightly concentrated top position of 50%, and the other two positions almost equally weighted. Consumer discretionary and info technology count for the bulk of his portfolio.
Please see our website at: Contestant Portfolios to view more details of each portfolio following the first week of activity, as well as to view the chart ranking each position so far.
A few issues here Michael,
ReplyDelete1. The positions list you distributed shows a start price for George F's 16million share purchase of GSA at $.01 cent. In this post you state the starting price for that security was $.005? Could we please have an updated spreadsheet showing the correct start prices?
2. The average volume for GSA in the past week has only been 300-1500 shares/day, so it is quite doubtful in a real-world scenario that George F. would have been able to fill his 16million share order at this $.005/share price without moving the price of the stock upward.
3. Similarly to #2, assuming that George was very fortunate to get a price of 1/2 cent for his 16million shares from somewhere, it is very unlikely that he would be able to sell them on the open market at this new magic $.01cent price due to the very low average volumes, without moving the price of the stock downward.
If this contest is a simple number guessing game, then let's announce it as such. If this is an exercise in portfolio management and theory, then allowing such speculative picks is somewhat out of touch with reality. Rules that limit purchases based on daily volume or that give points for efficient sharpe ratios would be a better representation of building a portfolio for growth.
I support the above statement. Very well stated.
ReplyDeleteAll I would add is that over the 9 week period such "unstable stocks" might gain a couple of cents but don't usually last longer than 1 year on the market unless they're a breakthrough company. Furthermore, snoopy's considerations above are quite sound and they point to the limited profit of investment in such stocks. Traders are happy with getting above 10 - 20 % profit from their investment in the market per year and here we see a 100% profit in 5 days; doubling a portfolio in 5 days would mean a job on Wall Street.
Furthermore, I really like the idea of having active trading accounts for the next challange.
well said snoppy! waiting to hear response
ReplyDeleteHello folks, I've let Michael know that he's got a few comments pending, he's out of the office right now, but he'll be in tomorrow morning to answer your questions.
ReplyDeleteActually there is a mistake. George's GSA evaluation is wrong. The stock did not start out at $0.005 but actually at $0.075. There seems to be a mistake at the charting at TMX. There is no way (supported by their graphs) that the stock went up to $0.115 from $0.01.
ReplyDeletePawel there was a 15:1 share consolidation on GSA yesterday which explains the new price. The market cap is still the same.
ReplyDeleteThis is great, and I'm really impressed with the quality of investment knowledge by the participants in our contest and by the individuals commenting about the contest.
ReplyDeleteLet me start by commenting about the stock price of GSA. On October 12th, the price of GSA was $0.005 per shares. On October 19th, the price of GSA was $0.01 per share. On October 23rd (yesterday), GSA executed a stock consolidation (reverse split) of 15 to 1. Hence, the pricing for the shares changed, as did the number of shares outstanding. This caused the price for October 12th to change to $0.075 per share historically. The shares closed yesterday at a price of $0.115 per share. The portfolio tables have been adjusted to take this into account, so don't worry, the original position in GSA will remain the same - 80% of the portfolio weight.
Second, snoopy is quite correct, the ability to get so many shares of GSA at $0.005 per share in one day or one trade would have changed the price of the shares in a real trade, and so the actual book value of the shares would have been different for the portfolio. However, this is a contest, and we are operating in a theoretical situation.
We have made several changes to the contest over the prior 2 times we have run it - we have set a minimum number of positions in the portfolio to 3; we have set the smallest position weight to 10% and we have limited the positions to include only those traded in the US or Canada. We can in the future add further stipulations, such as the minimum price of the shares to be $0.10, and the minimum daily trading volume to be 10,000 shares, but this we will leave for future contests. We don't want to take all the fun out of the contest, so we don't want to put too many restrictions on it.
Regarding ability to trade the account more frequently - we wanted to make the contest as open as possible to everyone, especially those who are traditionally mutual fund investors. A contest such as ours is a great way to learn about the stock market and get an opportunity to follow its ups and downs by holding a portfolio of stocks. If this was a trading contest, we would attract a different crowd, and we would have to have a greater variety of securities available (call and put options; commodity/currency/index futures, etc.). That is not the intent of the contest. We wanted to make it a simple contest where the broadest spectrum of investors could participate.
Furthermore, I wouldn't worry too much about those portfolios that have focused on penny stocks. We have seen in our past two contests that 4 out of 6 winning portfolios were made up of equal weighted positions of what could be considered blue chip stocks. Even those with double up/down ETFs didn't necessarily outperform. Although 9 weeks isn't a long time, it is a long enough period for balancing out strong penny stock performances - many portfolios that were early leaders in the first two contests tended to fade away by the last couple weeks of the contest.
Again, I'm really glad about the passion that so many are bringing to this contest - we enjoy your comments and do try to take them into consideration when setting this contest up. Thanks again.
By the way, we always have an opportunity to trade positions, which happens half way through the contest. This time it is November 16th, so if anyone wants to make trades/switches in their positions, have the sells and buys sent in by midnight on November 16th, and we'll get those into your portfolios.
ReplyDeleteThanks Michael for the clarification.
ReplyDeleteRe: "this is a contest, and we are operating in a theoretical situation"
The name of the contest is 'Investment Challenge'... the GSA trade is not theoretically sound, nor is it investing. Trades like this implies that we are playing a lottery where gamblers place bets. Not that there's anything wrong with that, but had it been clarified earlier I'm sure many would have chosen a more appropriate betting strategy.
For example, there's a little trick on the open market known as 'cross selling' where brokers pass penny or sub-penny shares back and forth to each other to fluctuate the price and generate interest, and bids for these prices on the open market never get filled. I suspect GSA is one of these stocks, and there are certainly others. An appropriate strategy for a betting contest would be to put 100% of your theoretical starting capital into these stocks, as I see a good portion of the contestants have done.
Re: "I'm really impressed with the quality of investment knowledge by the participants in our contest and by the individuals commenting about the contest."
Just to clarify, quality investment knowledge is knowing how to identify promising companies or capitalize on economic trends, while limiting your risk on capital. The content posted in these comments is merely sound knowledge about order execution and fulfillment, and I would hate for anyone to confuse these observations with a good investment strategy.
Snoopy, I like your passion about investing - I'm sure it will take you a long way towards building lots of wealth for you now and in the future.
ReplyDeleteI hope that you can still enjoy the contest, as most who play are quite happy with having the opportunity to participate. Irrespective of how people approach their portfolios, most do have good knowledge - whether that translates into good strategy is another question. It is a 9 week contest, so make position selections accordingly. As well, history has shown that the highest probability of outperforming peers, even in a 9 week span, has been through selecting stocks that have strong fundamentals, are positioned well technically and have appropriate valuation metrics. This is why we provide the tables with the applicable variables for stocks in the TSX Composite, TSX Venture and S&P 500 Index. That information alone is quite valuable to anyone, as it condences in one place information that is valuable to investors.
Don't forget, the UCU Investment Challenge is a contest - so enjoy and have fun with it!