Possible Investment Contest: Interested? Read More

Today I saw an article about a high school Investment Contest , and like most contests of that type, it does not teach investing, but speculation.

I’ve wanted to try this for about ten years or so. I’d like to try running a stock picking contest, but only if I can offer decent prizes, and get enough participants. I’ve written about this before, these would be the rules:

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  1. No leverage and no shorting
  2. No trading — buy & hold
  3. No Exchange Traded Products, and only common stocks
  4. Minimum market capitalization of $100 million
  5. Only stocks traded on US exchanges
  6. Forced diversification — a portfolio of ten stocks equally weighted
  7. One stock from each of ten volatility buckets, to reduce speculation
  8. Highest geometric mean return wins — this gives a bonus to consistency, which also reduces speculation. (Alternative rule: the best return on the seventh best stock in each portfolio wins.)
  9. Six month time frame.
  10. One entry per person.

The most critical rules are seven and eight. The idea is to get people to think like investors, not speculators. By forcing investors to buy a broad range of companies from conservative to aggressive will force them to evaluate individual companies, with an eye to avoiding big losers. Rule number one, as many say, is don’t lose money. This would honor the idea of avoiding losses while trying to make gains. It would be a lot like what intelligent investing in a portfolio of stocks is really like.

The idea is to promote stock-picking. Now lest you think I have taken all of the speculation out of this, let me tell you what my rules don’t stop:

  • Factor tilts — you can assemble a portfolio with price momentum
  • Industry and sector tilts
  • Foreign tilts
  • Size tilts
  • Valuation tilts
  • Investing in special situations
  • Copying famous investors

Investment Contest – Now, Who Would Be Sponsors?

I can’t fund this on my own. Also, I don’t think registration fees could fund such a contest. Parties that could benefit from the branding and free advertising would include financial information companies and brokerages — they are some of the logical beneficiaries of promoting stock-picking. So, would the following consider sponsoring such a contest?

  • Wall Street Journal, Yahoo Finance, Bloomberg, Marketwatch, Reuters, Money, Value Line, etc.
  • Nasdaq OMX, Intercontinental Exchange
  • Schwab, E-Trade, Scottrade, Interactive Brokers, Ameritrade, Fidelity, ETrade, etc.

I don’t know, but I would want to have at least 1,000 entrants and $50,000 in prize money if were going to run a contest like this. I’m sure it would be a lot of fun, and would teach investors a lot about investing, as opposed to speculation.

Thoughts on an investment contest? Send them to me. (Especially if you are interested in sponsoring the event.)

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.