Gimme My Money!

This is the last week in my continuing effort to see if I can win the half-million-dollar prize CNBC is giving away in its stock-picking challenge. I'm following the 10-step strategy that my Foolish colleague Bill Barker laid out for winning the two-month-long game. The contest ends this Friday.

We all basically agree that Bill's plan is a risky approach to investing -- highly concentrated portfolios of very small-cap stocks poised to announce earnings, so as to capture their volatility -- so we wouldn't want to necessarily invest this way in real life. However, for a game giving away some big bucks, it's worth a try, and I figured I'd emulate as many of Bill's ideas as closely as I could.

Don't try this at home
I screened for the smallest cap companies permissible ($500 million or more) whose stocks were trading below $10 a share and all showed relatively high levels of short interest. Bill suggested delving into biotechs since they often showed the greatest price fluctuations, but I opted to find companies where they lay.

So how am I doing? Well, it ain't pretty. All five of my virtual portfolios continue to sport losses and have an average return of minus 16.4%. Despite my "best" portfolio (Portfolio 1) improving to a loss of 4.4%, my worst portfolio (Portfolio 3) dropped to a loss of nearly 37% as Citizens Republic Bancorp (Nasdaq: CRBC  ) and mattress maker Sealy (NYSE: ZZ  ) dropped an average of 20% last week. I'll revisit my barn-burner Portfolio 1 this week to see why it has dropped from those positive gains reported earlier to the losses now. (There's a slight difference than the stock returns in the chart below, because it includes some cash holdings.)

Stock

Purchase Price

Price 7/14/08

% Chg.

Anthracite Capital (NYSE: AHR  )

$7.90

$6.22

(21.27%)

IAMGOLD (NYSE: IAG  )

$6.08

$6.39

5.10%

VeraSun Energy (NYSE: VSE  )

$6.40

$4.40

(31.25%)

Heckmann (NYSE: HEK  )

$7.44

$9.06

21.77%

Average Return

   

(6.41%)

These aren't the worst returns in the game, but I'm guessing my chances of catching the leader -- who has more than doubled his portfolio's value -- are slim.

Into the maw of housing
A month and a half ago, commercial real estate investment trust (REIT) Anthracite Capital was my best-performing stock, followed by Heckmann, and VeraSun Energy. While special purpose acquisition company (SPAC) Heckmann bought up a Chinese water bottler as the means to soak up its gains, Anthracite has been on a month-long skid that only briefly reversed course before resuming its downward trend. With the federal government having to take over a bank that loaned heavily for mortgages, let alone bailing out the two biggest mortgage companies, it's not hard to understand why a REIT has been pulled down as well.

Ethanol maker VeraSun Energy had been a hopeful contender, but as corn prices skyrocketed, people began questioning more harshly the use of feedstock for fuel. Moreover, the floods that swept through the country's heartland will end up making corn more expensive, and analysts are seeing margins under heavy pressure.

It's the seeming inequity of ethanol production that has some investors, like the appropriately named Motley Fool CAPS member socialconscious, taking umbrage at using food for fuel:

Underperform to the ground! I with Tuffsleding food for fuel is immoral. Lets forget corn or other crops that produce starch ethanol that requires natural gas to produce. We can make ethanol from switchgrass ( a grass found in the midwest prairies), and Miscanthus( other grass from Asia/Africa) or other cellulosic( non-edible) means. Lets find a way to make that cost effiicient with the same zeal we give to developing our weapons of war! Just my opinion if I offend or educate my apologies.

Movin' on up
While a lot can happen in a week's time, I'm not holding my breath that IAMGOLD will soar to the forefront with a spike in gold prices. Next week I'll analyze what went wrong with the strategy and what, if anything, went right.

Previous portfolio updates:

Fool contributor Rich Duprey does not have any real financial positions in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.


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  • Report this Comment On July 18, 2008, at 3:55 PM, notfortheaverage wrote:

    If the EPA reduces the 2008 9billion gal mandate by 50%,ethanol prices will go down by a large % of the 51/45 cent tax credit.If blenders had to pay the 51/45 cent to the ethanol suppliers there is no benefit to blend and no mandates.

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