November's Stock Market Challenge Game Newsletter

We are halfway through the financialpost.com Stock Market Challenge with two months to go and still lots of exciting game play to come!

The last month has been an extremely volatile one in terms of the market, proving to be a great challenge for every trader and investor.
But keep trading & investing those stocks, your hard work will pay off.

With a comfortable lead nearly halfway through the Financial Post Stock Market Challenge contest, Doug O'Brien, a 65-year-old retired insurance sales manager from St. Hyacinthe, Que., has reduced the frequency of his trading and opted for a slightly more conservative approach.

After markets closed Nov. 10, Mr. O'Brien, who plays as risingstar, had turned his $100,000 in play money into $873,123, a 773% gain, and sat well ahead of the second-place player, a CBC employee who wants only to be known as Martyn, playing as funnycbcguy, with $421,102. Both players had General Motors as their most recent trade.

The contest, which ends in mid-January, awards $25,000 in real money to the top trader (25 or more trades) and the top investor (24 or fewer trades), with $15,000 for second place and $10,000 for third in each category.

With $873,000, Mr. O'Brien's lead looks nearly insurmountable, given that only three players have portfolios of more than $300,000. Indeed, in these horrible markets, only 18% of players have more than the $100,000 starting amount and fully 82% have lost money.

Mr. O'Brien's desk is arrayed with five computers. The screens, which feature feeds from Montreal-based DecisionPlus (decisionplus.com) and Stockwatch (stockwatch.com) along with the Stock Market Challenge itself, give him up-to-the minute feedback on what markets are doing and help him to indentify stocks with volatile share prices.

Mr. O'Brien has so far shown superior skill and he has been on top for too long to call it luck, being able to rapidly short-sell volatile stocks when markets are falling and to buy when markets are rising, holding them just long enough to make a profit. His strategy has worked best when the markets are most volatile at what he describes as a swinger's market. In less volatile markets, Mr. O'Brien says he becomes more of a stock picker, which he says is his real strength.

Contestants are limited to 5,000 trades, and Mr. O'Brien, who has made about 2,500 trades already, has been keeping a close eye on his trading frequency to ensure he can still buy, sell and sell short in the final week of the contest in mid-January.

As a retiree, Mr. O'Brien begins trading when markets open and rarely leaves his desk until they close. But other top players with full-time jobs and other commitments cant watch the market nearly so closely, making their performance all the more remarkable.

To win the separate $25,000 first prize for investors, contestants must keep the number of trades below 25, which means the player must successfully determine which stocks are likely to move in the predicted way over the life of the contest is a tall order.

Among the leaders who cant be at a computer terminal all day is Melissa Moore, a 30-year old registered nurse from Toronto who plays as lexiwins.

She was in third place as of Nov. 10, with $383,691, a 284% gain, despite having to attend to hospital patients.

Ms. Moore says she follows a simple strategy: look for a volatile stock with huge recent losses and high volume and bet everything on it in hopes it rebounds.

Its a gamble, and I could have just as likely ended up at the very bottom, but I think that in order to win this contest as an investor, you have to take big risks in volatile stocks, she said in an e-mail.

Most of the top investors have achieved success by following a similar strategy: identifying a single volatile stock and buying it just before it skyrockets or by short-selling it just before it plunges. That appears to involve an ability to forecast the future you might normally dismiss as pure luck, or randomness. After all, regardless of how large or small the field, somebody has to be in the lead. But the leaders have one universal characteristic: all are keen followers of the news. Their success seems to be linked to an exceptional ability to quickly determine how shareholders will react to events and to buy before the reaction takes hold.

Richard Morrison, Financial Post
November 13, 2008
from: November's Stock Market Challenge Game Newsletter