Buy Buy Buy, Sell Sell Sell, You Just Quadrupled your Money(Beet the Street Contest 2.0) The BeginningI participated in the first Beat The Street contest at TheStreet.com. It didn't take long for me to get discouraged though, as the leaderboard soon filled up with portfolios over a million dollars. I stopped actively playing and I ended up with a return of about 20%. The "Winner" had racked up over a billion dollars. I wondered if it was possible that they knew something I didn't and they actually had genuine returns. Now I know they didn't, as the contest was scrapped due to rampant cheating.So when I was automatically entered into the second contest, I decided to play a bit for fun to see if I could beat 20%. If you want to skip ahead, my complete trade history is included on this page. Even though I didn't have much of a strategy at this point, I realized in a short-term winner take all stockpicking game, diversification is a bad idea. So I would usually hold just one stock at a time, at most two at time when I couldn't decide between promising choices. My first two trades, long TGA then short VG made modest gains bringing me to 23% in two weeks. One of the plays that made me money last contest was to short Vonage whenever it was over $3. Long-term I wouldn't be surprised if VG went to $0. I then tried buying TGA again but was told the stock was too small. Disappointed that I couldn't buy what I wanted, I forgot about the contest. (In retrospect holding TGA during that time would have netted me a 20% gain, but returning to short VG would have made a decent gain too.) A week later I was discussing stocks with my family and thought of the contest, and decided to start playing again. I traded CHKE, NE and CDE without much gain. I was at 24% now. But more importantly, none of the leaders had millions of dollars. It was enough to make me think maybe I had a chance, so I came up with a more serious gameplan. StrategyIn a short term contest like this one, you need to make big gains quickly. Big changes in stock price are mostly caused by news events, and of those news events, the most predictable are earnings releases since you know the exact day and time. I also felt there was a phenomenon I could take advantage of... people are afraid of losing money. However, the earnings reports were mostly good, especially for companies that traditionally beat estimates. So I spent some time researching earnings dates and creating a list of these companies. Here are a couple examples :"ISRG - July 19 Aftermarket" "CMG - July 31 Aftermarket" Some of the companies I knew of because I own them in real life. Others I found by looking through Yahoo Finance Earnings Dates. If you see CMG is reporting and you want quickly check CMG's previous earnings reports and estimates, and current analyst expectations, you can go to CMG on Yahoo Finance, look for the analyst section in the lower right and click on Estimates. My plan was to get in before earnings and get out the next day, ready to buy the next company in my list.
Big GainsI live on the west coast, and get up at 8 or 9am, which is 11 or 12 EST, then head off to work, so most of my trades were made in this time. I'd buy the stock the day before the earnings release, then usually sell the next day. My list left empty days, so I might keep holding longer, or have an empty portolio for a time.
My first buy was LRW. The day after earnings it was the top gainer for the day on Google Finance list at almost 20%. Still, I was up about 90% for the week. I had 243K overall for the contest. I was in the top 20 and I felt good about my strategy. I figured I'd at least see myself on the top ten list. My next trades were:
COP - There earnings were much stronger than estimates, but the loss of their Venezuelan assets was recorded that quarter which meant almost no profits, and a slight loss for me. DesperationWith only three days left, it had become obvious that I wasn't going to catch the leaders without revising my strategy. I only had two companies left on my list, VTIV and AFSI. Since this was a winner takes all contest, I decided I needed to go for highest delta stocks I could instead. At this time, that meant homebuilders/mortgage companies. I had a feeling a lot people on the leaderboard got there by shorting them. However they had already lost much of their value so I decided to gamble on a bounce. First I traded out of VTIV and into RAS. It quickly dropped 10%, then gained it back by the end of the day. So I traded back to VTIV. I sold VTIV the morning after earnings, which didn't look that good to me, but had netted me an 8% gain.By that time my next homebuilder target BZH already had double digit gains. I decided to go short, hoping they'd drop back down. ( Their last earnings report was amazingly bad after all, and I could get lucky and more bad news would be reported. ) Instead, BZH went up. And up. By the end of the day I had lost $100K on them. The next morning when I woke up I had lost another $100K. And any hopes I had of winning the contest, or even seeing my name on the leaderboard, were completely gone. In retrospect shorting BZH at 13.34 would be a good trade, I just picked the wrong 2 days. In an attempt to salvage something I looked around in the sector and went long on PCR, that had reported great earnings yet was down big. The FinishPCR edged me up to finish at $274K and 42nd place. If I had gone long on BZH for the same period I was short on it, I would have had over $700K and placed third. I still would have went home with nothing, but at least I'd get to see my name on the leaderboard. (At my best point I was 11th place.) The largest my portfolio got was $440K, which was right before my Beazer blow up. It was an entertaining game, and I think worth waking up early and the time spent scanning earnings dates and history.Looking back there are a few things I would have done differently. There's a natural inclination to say do more winning trades and less losing ones. Something about the stock market makes people think in retrospect they could have known this company would have made a bigger jump, or this one fall after earnings, or that some rule can be retrofitted to do better next time. It never seems to work going forward though, and I have to admit I was pretty lucky to more than quadruple my money at one point.
The main thing I would have done is gone bigger and taken more risk, and of course not stopped playing for a week. With margin there were times I could have upped my trades as they gained money, instead I rarely even made sure I was all in on the initial buy. I skipped some buys like DECK and WYNN which would have netted me nice gains because they looked too risky. Maybe I should have tried playing the short side of earnings too with companies like RadioShack and Jones Soda. Of course playing with Mortgage/Homebuilder stocks in the last 3 days was the most risky and didn't turn out well, but it needed to be done for any winning chances.
Daily Returns6/13/2007 0.00 0.00 100,000.00 100,000.00 0.00 % 6/14/2007 197,000.00 0.00 -97,036.87 99,963.13 -0.03 % 6/15/2007 195,500.00 0.00 -97,063.75 98,436.25 -1.56 % 6/18/2007 196,500.00 0.00 -97,144.43 99,355.57 -0.64 % 6/19/2007 211,500.00 0.00 -97,171.34 114,328.66 14.32 % 6/20/2007 218,500.00 0.00 -97,198.26 121,301.74 21.30 % 6/21/2007 219,000.00 0.00 -97,225.18 121,774.82 21.77 % 6/22/2007 216,500.00 0.00 -97,252.11 119,247.89 19.24 % 6/25/2007 214,500.00 0.00 -97,332.95 117,167.05 17.16 % 6/26/2007 0.00 1,360.00 112,169.50 113,529.50 13.52 % 6/27/2007 0.00 8,160.00 112,181.95 120,341.95 20.34 % 6/28/2007 0.00 8,840.00 112,194.40 121,034.40 21.03 % 6/29/2007 0.00 0.00 123,078.06 123,078.06 23.07 % 7/2/2007 0.00 0.00 123,119.05 123,119.05 23.11 % 7/3/2007 0.00 0.00 123,132.72 123,132.72 23.13 % 7/5/2007 0.00 0.00 123,160.05 123,160.05 23.16 % 7/6/2007 0.00 0.00 123,201.07 123,201.07 23.20 % 7/9/2007 188,600.00 0.00 -66,927.46 121,672.54 21.67 % 7/10/2007 182,150.00 0.00 -66,946.00 115,204.00 15.20 % 7/11/2007 232,926.40 0.00 -114,476.00 118,450.40 18.45 % 7/12/2007 242,780.40 0.00 -114,571.16 128,209.24 28.20 % 7/13/2007 242,780.40 0.00 -114,539.43 128,240.97 28.24 % 7/16/2007 249,600.00 0.00 -125,792.93 123,807.07 23.80 % 7/17/2007 237,300.00 0.00 -115,144.82 122,155.18 22.15 % 7/18/2007 229,500.00 0.00 -115,176.71 114,323.29 14.32 % 7/19/2007 315,168.00 0.00 -147,224.48 167,943.52 67.94 % 7/20/2007 0.00 0.00 242,237.40 242,237.40 142.23 % 7/23/2007 470,965.00 0.00 -227,866.92 243,098.08 143.09 % 7/27/2007 497,468.80 0.00 -215,914.29 281,554.51 181.55 % 7/30/2007 552,800.00 0.00 -258,962.52 293,837.48 193.83 % 7/31/2007 555,308.00 0.00 -259,034.25 296,273.75 196.27 % 8/1/2007 624,160.00 0.00 -293,616.56 330,543.44 230.54 % 8/2/2007 752,800.00 0.00 -348,203.99 404,596.01 304.59 % 8/3/2007 0.00 16,530.00 375,227.66 391,757.66 291.75 % 8/6/2007 736,565.00 0.00 -363,334.65 373,230.35 273.23 % 8/7/2007 714,675.00 0.00 -338,122.28 376,552.72 276.55 % 8/8/2007 0.00 -96,892.00 427,290.14 330,398.14 230.39 % 8/9/2007 394,000.00 0.00 -162,339.62 231,660.38 131.66 % 8/10/2007 436,960.00 0.00 -162,384.58 274,575.42 174.57 % Trade History06/14/2007 Buy TGA 50,000 3.94 10.00 197,010.00 06/26/2007 Sell TGA 50,000 4.19 10.00 209,510.00 06/26/2007 Sell Short VG 68,000 3.28 10.00 223,050.00 06/29/2007 Cover Short VG 68,000 3.12 10.00 212,170.00 07/09/2007 Buy CHKE 5,000 38.02 10.00 190,110.00 07/11/2007 Buy NE 480 99.00 10.00 47,530.00 07/16/2007 Sell NE 480 101.51 10.00 48,734.80 07/16/2007 Sell CHKE 5,000 38.55 10.00 192,760.00 07/16/2007 Buy CDE 60,000 4.21 10.00 252,610.00 07/17/2007 Sell CDE 60,000 4.16 10.00 249,610.00 07/17/2007 Buy LRW 10,000 23.89 10.00 238,910.00 07/19/2007 Sell LRW 10,000 27.98 10.00 279,810.00 07/19/2007 Buy ISRG 2,100 148.47 10.00 311,797.00 07/20/2007 Sell ISRG 2,100 185.45 10.00 389,455.00 07/23/2007 Buy COP 5,500 85.47 10.00 470,095.00 07/25/2007 Sell COP 5,500 83.49 10.00 459,205.00 07/25/2007 Buy TDY 4,888 45.50 10.00 222,414.00 07/25/2007 Buy STRA 1,600 135.68 10.00 217,098.00 07/26/2007 Sell STRA 1,600 159.25 10.00 254,810.00 07/26/2007 Buy VSEA 6,000 43.71 10.00 262,270.00 07/30/2007 Sell TDY 4,888 45.49 10.00 222,365.12 07/30/2007 Sell VSEA 6,000 44.64 10.00 267,850.00 07/30/2007 Buy CMG 3,000 83.99 10.00 251,980.00 07/30/2007 Buy CMG 2,000 84.24 10.00 168,490.00 07/30/2007 Buy CI 2,200 51.16 10.00 112,562.00 08/01/2007 Sell CI 2,200 48.47 10.00 106,644.00 08/01/2007 Sell CMG 5,000 97.28 10.00 486,410.00 08/01/2007 Buy ANSS 2,500 26.55 10.00 66,385.00 08/01/2007 Buy ANSS 21,000 26.72 10.00 561,130.00 08/02/2007 Sell ANSS 23,500 29.19 10.00 685,975.00 08/02/2007 Buy NGPS 20,000 37.02 10.00 740,410.00 08/03/2007 Sell NGPS 20,000 36.17 10.00 723,410.00 08/03/2007 Sell Short CFC 29,000 25.57 10.00 741,540.00 08/06/2007 Cover Short CFC 29,000 25.64 10.00 743,570.00 08/06/2007 Buy MTG 23,000 32.35 10.00 744,060.00 08/06/2007 Sell MTG 23,000 32.55 10.00 748,660.00 08/06/2007 Buy VTIV 20,500 36.15 10.00 741,085.00 08/07/2007 Buy RAS 1,400 7.90 10.00 11,070.00 08/07/2007 Sell VTIV 20,500 36.12 10.00 740,470.00 08/07/2007 Buy RAS 90,000 8.02 10.00 721,810.00 08/07/2007 Sell RAS 91,400 7.99 10.00 730,296.00 08/07/2007 Buy VTIV 19,500 36.54 10.00 712,540.00 08/08/2007 Sell VTIV 19,500 39.25 10.00 765,385.00 08/08/2007 Sell Short BZH 7,200 13.15 10.00 94,690.00 08/08/2007 Sell Short BZH 50,000 13.34 10.00 667,010.00 08/09/2007 Cover Short BZH 57,200 16.90 10.00 966,690.00 08/09/2007 Buy PCR 8,000 48.07 10.00 384,570.00 |