This post features my hypothetical stock picks for a contest (Financial Uproar Stock Picking Contest). I am not endorsing nor recommending any of my picked stocks. In fact I’m saying that these four stocks are terrible investments. It’s all in good fun.
Nelson sent me an email two weeks ago announcing his Second Annual “Financial Uproar Stock Picking Contest”. I intend to enter. Here are the rules as stated in his email:
“You pick 4 stocks, I tally the results and everyone who isn’t in first will get mocked. Any stock on the Canadian or U.S. exchanges are fair game. You can only buy stocks for the contest, you can’t short them. And if one of your stocks gets taken over before the contest is over, you’re locked into that gain for the entire year, no matter how much you whine about it. (*coughJTcough*)”
While the rules seem simple, they have interesting implications.
- I’m committed to value investing a.k.a. dividend investing. The contest is being judged on capital gains and dividends — the former is likely to dwarf the latter (for better or worse) during the course of a single year. I’m not concerned with price fluctuations when I invest because I can’t predict them better than the market. Of course I want the price of my stocks to increase, but I’m much more worried about collecting a steady stream of tax-efficient income. For example, I bought Automodular in the fall. Since then, I’ve enjoyed 26 cents a share in dividends or a 14.4% return (and that’s just for a single quarter because of a special dividend). The value has increased by about 20 cents a share, but I couldn’t care less — why would I sell if I can make 20%+ a year? I don’t have any magic ability to pick stocks. My strength (if any) is having the discipline to pick companies that spin off cash to their investors; picking stocks for capital gains will make my selections entirely akin to gambling.
- I’m not actually investing any money so there’s no incentive to make optimal, profit-maximizing decisions. I have no skin in the game. If I were putting my money where my mouth was, I’d be a lot more risk averse and much more careful in my selections.
- I’ve got to pick four stocks all at once. The idea of entering four positions on the same day is completely unrealistic for me. This, again, will result in an under-analyzed decision.
- The best approach to winning this game (which, as I said before, will be won and lost on capital gains) is probably to pick highly volatile penny stocks. By the end of 2013, they’re more likely than other stocks to have exploded (either in a good way or a bad way). Picking four blue chip stocks in diversified sectors, on the other hand, would probably result in a middle-of-the-pack performance.
Because there are so many limiting factors and, simply by participating, I’ll be picking stocks in a manner that is incongruous with my beliefs about investing, I’ve decided to do something different. If you read TF often, you already know what I think makes a good investment. I am going to try and pick the worst portfolio possible. Avoiding bad investments is an important part of building wealth. There is some value in understanding poor reasoning and bad decisions. So let’s see if I can plan my way to last place (I heard there’s a toilet plunger prize available).
Here are my four horrible stock picks, along with counter-intuitive reasons for each.
Financial Uproar Stock Picking Contest Pick #1: Apple (APPL)
Everybody loves their products (including me; a generic, 20-something female debt blogger). I will ruthlessly defend their devices’ superiority even though it’s all hipster garbage. The iPhone and iPad, which generate 80% of the company’s revenue, have completely saturated the market proving the only direction is UP UP UP. Plus they just introduced a really tiny dividend so, even when the company is on top of the world after decades of burning shareholder value, they still don’t compensate investors. And why would they? Steve Jobs is God, RIP.
Financial Uproar Stock Picking Contest Pick #2: Tim Hortons (THI)
Market saturation? US growth problems? A piddly 1.7% yield in a steady, slow-growth industry where “cash cow” yields should be expected? I don’t care, I love my extra large double double. BUY WHAT YOU KNOW GUISE.
Financial Uproar Stock Picking Contest Pick #3: Regulus Resources, Inc. (REG)
I get hot tips about Junior Mining companies listed on the TSX Venture exchange all the time. Straight into my inbox. Sometimes I get so many that Gmail thinks they’re spam. I’m a big deal like that.
Financial Uproar Stock Picking Contest Pick #4: eBay (EBAY)
Did you know that eBay supports gay marriage? Investing is about making moral statements, not money. Yeah, I’m an ethical investor. Plus it’s at a 5-year high; again, momentum is everything when you’re a brilliant technical investor like me.
So there you have it. The four worst, most wealth-destroying, poorly-justified possible stocks that I could dream up. What do you think of my choices for the Financial Uproar Stock Picking Contest?
Disappointed. No RIM?
While I would never be insane enough to put money into RIM (Nelson, there’s still time to sell), I think there’s a chance that BB10 could result in a bounce. I think it’ll be a depressing fizzle like all their other launches in recent years, but good news could result in a skyrocketing price, whereas all the upside is currently priced into stocks like Apple.
I will giggle if you win.
lol It’d definitely be a win for the Strong Efficient Market Hypothesis.
Given the typical results of active managers who actually try to beat the market, you may have a shot at the title here with your contrarian strategy.
Since my last stock prediction on here was wildly successful, I’ll take another shot at picking today’s ugly babies that will win next year’s beauty pageant:
- RIM: IN 6 MONTHS NO ONE WILL BE CAUGHT DEAD READING THE @#%(*$% NYT ON THEIR BB10. Dirty hippies.
- Yahoo: I feel like they’ve been beaten up a lot and may have finally increased the average IQ of their leadership to something above 60, in contrast to companies like HP that shoot themselves in the foot and then hobble back to the “liquor, guns, and fireworks” store down the street.
- BP: They blew up an ocean, they’re in the thick of the European meltdown, and commodities “have to crash” when the world drives off an Aegean cliff. What could possibly happen to them next year?
- I’m running out of ideas and actually had to do some research for this: Bank of America. It’s had a lot of bad news recently which makes it a perfect setup for the coming year. When people wake up on Jan 1st and see that the politicians got drunk and made a deal at the Washington New Year’s Eve party, corporations start to spend all their excess cash once the politicians have run out of ways to confuse people, and the housing market continues to recover, it could really take off.
If this goes well I will immediately retire from stock picking with the highest returns ever recorded.
lol I tried to use my picks to elucidate a variety of possible mistakes. Yours, however, definitely take the cake in terms of flat-out awful picks. Keep it up! hahah
By awful I meant intentionally awful. It seems weird to compliment somebody in that way.
You’re terrible and your picks are terrible.
My picks are bad and I should feel bad?
This looks like fun! Good luck, I hope you win!
lol thanks? Except that I made the worst picks ever and I think it would be embarrassing for everybody if I won. hahah
but if you win I heard there was a special prize!!!!!
I’ve got a post coming up next week that reveals my four picks, and I believe I treated them about as seriously as you did. As an indexing advocate the idea of me finishing anywhere in the top half of a stock-picking contest is pretty ridiculous. The central theme of my picks is making plays based on the legalization of marijuana!
lol. That’s actually not a bad idea given that it’s now law in CO and WA. The States that legalize will see a very real drop in crime and organized criminal activity.
As well as a large uptick in tax revenue!