Scott, you really don't have a stock-picking challenge, then. You don't even have a portfolio-picking challenge. What you have, with this rule, along with the 100-share rule, is a really unrealistic, one-of-a-kind contest.
"We will use the total percentage return as calculated by the portfolio tracker."
A stock-picking challenge is a contest where everyone picks "n" stocks. The winner is the one who had the best average return of their "n" stocks.
A portfolio challenge is a contest where everyone is given n$ to invest as they see fit, allocating shares within their portfolio. (These contests often permit fractional shares so that a precise allocation can be done.) The winner is the one with the largest $ gain.
I dunno what to call this. I guess a "low-priced stocks don't count" contest.
Here's the problem. I pick:
ABCD .01
CDEF .05
ABC $10
XYZ $100.00
ZZZ $250.00
Now, ABCD has a 1000% gain, and winds-up at $1.01
CDEF has a 200% increase, and winds-up at .15
ABC has a 100% gain, and winds-up at $20
XYZ has a 50% gain, and winds-up at $150
ZZZ has a 30% loss, and winds-up at $175.00
Using the common "stock picking contest" rules, the gain would be 1000+200+100+50-30/5 = 264% average gain.
However, using the SI "portfolio gain", the gain on 100 shares of each stock is:
stock cost value gain (loss)
ABCD 1.00 101.00 100.00
DEFG 5.00 15.00 10.00
ABC 1000.00 2000.00 1000.00
XYZ 10000.00 15000.00 5000.00
ZZZ 25000.00 17500.00 (7500.00)
------------- ------------- -------------
36006.00 42366.00 (1390.00)
Or, a LOSS of 3%.
The 5 stocks had an average gain of 270%. But the SI portfolio is going to show a loss of 3%.
IMO, it's a meaningless contest. It doesn't demonstrate the ability to pick stocks.
Either the gain should have been calculated as the average % gain of the 5 stocks, or participants should have been permitted to allocate the shares among the stocks, rather than being forced to buy a fixed number of shares of each stock.
The purpose, IMO, of a stock-picking challenge, is for the contentants to demonstrate the ability to pick a number of stocks, that on average, must do well in order to win. However, with this contest, one could simply pick a single stock that one felt would be a winner, and then just toss in 4 very low-priced stocks that essentially will not count in the tally. You could pick a single high-priced stock that moves up only modestly, and 4 low-priced stocks that lose 99% of their value, and still win.
I have to say, this shows a shocking lack of understanding of basic principles of investing by SI management... |
