The clock is counting down faster as I continue to see if I can win the half-million dollar prize CNBC is giving away in its stock-picking challenge. I'm following the advice my Foolish colleague Bill Barker laid out a few weeks ago for a 10-step strategy to win the two-month-long game. I've got till July 18 to pull this off.
We all basically agree that Bill's plan is an admittedly 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 necessarily want to invest this way in real life. However, for a game giving away some big bucks, it's definitely worth a try -- so I figured I'd emulate Bill's ideas as closely as I could.
Don't try this at home
As I originally noted, I screened for the companies with the smallest market caps allowed ($500 million or more) whose stocks were trading below $10 a share and showed relatively high levels of short interest. Bill suggested delving into biotechs because they often showed the greatest price fluctuations, but I opted to find companies across all sectors.
So how am I doing? Can you say ewwww? The bloodletting continues, as all five of my virtual portfolios have now moved into the red. On average, my portfolios have lost 13.5%, ranging from a 6.4% loss in Portfolio 1 to more than 27% in Portfolio 3. Let's take a look at my worst set of stocks to see why it has done so poorly:
|
Stock |
Purchase Price |
Price July 7 |
% Chg. |
|---|---|---|---|
|
99 Cents Only (NYSE:NDN) |
$9.51 |
$6.44 |
(32.3%) |
|
Sealy (NYSE:ZZ) |
$6.30 |
$6.94 |
10.2% |
|
Champion Enterprises (NYSE:CHB) |
$9.29 |
$5.05 |
(45.6%) |
|
Citizens Republic Bancorp (NASDAQ:CRBC) |
$6.90 |
$2.71 |
(60.7%) |
As bad as that is, I'm still not the lowest investor on the list. But at around No. 768,000 or so, I'd say chances are slim I'll be catching the leaders, who have more than doubled their portfolio's value.
Into the maw of housing
Citizens Republic has been working to strengthen its balance sheet by raising $200 million in a stock offering. But it suspended its dividend after profits fell 60% for its latest quarter. Commercial and residential mortgage problems ate into its operations, and investors weren't willing to see what was coming next.
Modular-home builder Champion Enterprises has also been knocked down further by the continuing meltdown in the housing sector. The Federal Reserve acknowledges that the situation may not begin to improve until at least next year, confirming recent record year-over-year declines of both the Case-Shiller home price index and the Office of Federal Housing Enterprise Oversight index. Rather than hitting bottom, the crisis just seems to be getting worse.
A good night's sleep
The one stock here that surprisingly has allowed investors to sleep at night has been mattress maker Sealy, which has risen more than 10% and is poised to report earnings today. While the company is expected to report lower earnings because of rising costs, it should still do better than some of its competitors. High-end makers, like Select Comfort (NASDAQ:SCSS) and Tempur-Pedic (NYSE:TPX), produce mattresses that cost thousands of dollars and are seen as luxuries instead of necessities. Sealy, with a mix of price ranges for its offerings, ought to fare better.
Still, as CAPS All-Star Capsperson notes, when it comes right down to it, buying a mattress is secondary to keeping the roof over your head.
On the one hand, I bought a new Stearns and Foster mattress which is made by Sealy, and I really like it. On the other hand, people are struggling to keep the house around them, and a mattress purchase is the very low end of discretionary purchases.
With a portfolio that has been concentrated in sectors that are influenced by housing -- even though banks, homebuilders, and furniture companies approach it from different angles -- it's not too surprising that Portfolio No. 3 has been a dog.
Movin' on up
A lot can happen in a week's time. So come back next week, when we'll see which of my portfolios may yet catapult me to the lead -- or at least back into the black.
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