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?