RD's Picks

With only a few days left, I wanted to look over what's worked for me over the course of the contest, what hasn't, what I've done well and where I need to improve.

I outlined my reasons for entering SLO and planned strategy in my first blog entry. I wanted to get some realistic portfolio management practice and help decide whether to shift my retirement accounts out of mutual funds to more individual stocks. The primary portfolio focus was on dividend paying stocks with above average yield and good prospects for raising the dividend. There was also room in the portfolio for some growth and cyclical picks. I didn't expect that strategy to be in contention for the top or bottom of the leaderboard and it wasn't.

I'm pleased with how well I did over the contest. Part of my reason for playing was to evaluate whether or not I had the ability and commitment to manage my own retirement portfolio. From a performance standpoint, the answer is clear - I managed to beat the S&P500 and the stock mutual funds in my portfolio. I've also enjoyed following the market and feel like I can continue to devote the time to research and manage the portfolio.

With two days to go, the portfolio is down slightly from the July 31, '07 start. If I add in pending dividend payments, it probably sneaks above par. That doesn't sound good until you compare it to the S&P500, which is down 12.35% over the same time span. My returns from the 28 Jan start of Strategy Lab also top four of the six players in that contest.

Out of 32 stocks held at some point during the contest, I had 18 losers and 14 winners.

Stocks that performed well for me over the course of the contest were primarily energy and energy related industrials [Graham Corp. (GHM), Joy Global (JOYG), Chevron (CVX) and Transocean (GSF/RIG)]. InBev's offer for Anheuser Busch pushed BUD to my second biggest gainer. Recently, Novartis (NVS) has been doing very well after issuing good news on its cancer treatment drug.

At the other end of the spectrum, my biggest dollar loser was Cisco (CSCO). That's particularly frustrating because I let a win turn into loss and then loaded up to gamble on an earnings report - not smart. Second big loser was Rubio's (RUBO) a microcap Mexican restaurant chain that I still think has promise if they can expand out of the weak Southern California economy. RUBO is a very thinly traded stock and with M*'s order filling system, when things go bad it's very difficult to exit the position. Wells Fargo (WFC) also didn't do well for me. No surprise given the disaster in financials. What is a little surprising is when the dividend payments are factored in, my WFC position wasn't far off the S&P 500; trading around the position definitely helped. I also managed to pick what has to be the only losing gold stock in existence over the past year, Northgate (NXG).

I summarized some lessons learned from round 1 and really don't have much to add to that list. Balancing the discipline between not letting winners turn into losers and not bailing out of winners too early remains a challenge. In many ways, it seems like more of an art than science and I made mistakes in both directions over the contest - sold winners too early and held winners too long.

One benefit of running a mock portfolio is it helps with patience in real life; when things are crazy I can mess around in M* and use those moves as a 'cooling off' period or time to evaluate a new position before making changes in my real portfolio. SLO stock research resulted in adding some winners like GHM, NVS, and BUD to my real portfolio. Still waiting to see if Dresser-Rand (DRC) and General Electric (GE) will work out.

I found blogging about stock picks to be very helpful in organizing the reasons for making an investment and the associated risks. I'll plan on continuing with the blog and the M* portfolio as the experience and practice has been good for my real world investing. Hopefully Jamie will be rolling out the renovated site soon.

And, finally, the biggest benefit by far from this contest has been some new friends. I hope to continue trading e-mail, blog comments, M* forum posts, etc. with Tom, Dave, Don, Peggy, Eileen, Armin and others I've cyber-met over the past year. Thank-you all for reading my posts and for your comments, ratings and blog entries.

Best wishes to all of you. And good luck to whoever moves on to the next Strategy Lab.

Comments: View Comments |  Thursday July 10, 2008