CNBC Million Dollar Portfolio Challenge: #61,448

Who turned up the gravity?

As if the -30.2% drop in i2 Technologies (ITWO) on Tuesday were not enough top off my humility tank, yesterday saw Amkor Technology (AMKR) shave another 1.9% off of my portfolio. Just for good measure, today’s pick, Open Text (OTEX), is currently tracking down 4.5%.

Somehow, I have managed to stay in the top 4% of the 1,594,583 contestants who are suddenly looming a lot larger in my rear view mirror.

I really can’t fault the earnings spike potential algorithm, as its top pick from yesterday, Charter Communications (CHTR), is currently trading up a little over 3%. In a contest like this one, though, half the fun is throwing caution to the wind and overriding what your stock picking system is telling you what to do – which is exactly what I intend to do again today.

For those who are worried about my casual disregard of CNBC dollars, you might be somewhat heartened to know that I am toying with a new kind of stop, a so-called behavioral stop. Don’t look for this term on Investopedia, however, as I just made it up. I define a behavioral stop as “metric-based trigger that is designed to force an individual from continuing on a course of repeating a particular self-destructive investment behavior.” For example: if I drop out of the top 10%, then I stop playing volatility roulette.

Now, let’s see who’s reporting after the bell today…

CNBC Million Dollar Portfolio Challenge: #41,667

Some days you can console yourself with thoughts of, “Well…it could have been worse…” Yesterday that particular consolation was not a straw available for me to grasp at, as my ‘all in’ bet on i2 Technologies (ITWO) turned out to be on the stock that had the largest percentage decline across the entire universe of NYSE, Amex and Nasdaq stocks. The damage was considerable, dropping me some 40,000+ places from the top 0.1% to the top 3%.

The gory details about ITWO’s earnings boil down to a significant earnings miss; a drop in maintenance revenues (often an indication that customers are unhappy with the software); and news that the 57-year-old CEO is retiring – with comments that the Board of Directors have “started looking for a replacement.”

A couple of interesting things happened along the way to this implosion. The most obvious one is that my earnings spike potential algorithm has to be considered a resounding success, as its last two selections have notched impressive gains and another stock it rated highly, ITWO, showed impressive volatility yesterday, albeit in the wrong direction. Yes, this is a Pyrrhic victory, but it is one that may pay some real money dividends down the road.

The other aspect of this is the emotional one. I have never tried paper trading and do not recommend it for those looking to learn how to trade. ITWO turned out to be the perfect case study. It cost me over a half a million dollars yesterday and my reaction was mainly that of amusement over the magnitude of the loss. Apparently, the entertainment value of CNBC dollars far exceeds the portfolio value.

If these were real world dollars, I would probably have agonized over the gap down in ITWO yesterday, hoped for a bounce (yes, I know you should never let “hope” enter into your trading calculus), then cut my losses as the intra-day pattern of lower highs and lower lows failed to reverse. At least that’s what I like to I think I would have done. In practice, too many investors, particularly inexperienced ones, cling to these horror stories and search frantically for any stray piece of information that can justify their instinctive response to hold on – with this pattern repeated over hours, days, weeks and sometimes months.

Without any dollars at risk or emotions involved in holding ITWO, I dumped it unceremoniously at the end of the trading day (no intra-day trading is allowed in this contest) and looked for another potential high-flier. Today my CNBC dollars are riding on the Amkor Technology (AMKR) bus; while AMKR has been doing wonders for my Portfolio A1 portfolio, today it is up 1%, consistent with the gains in the broader market.

Hey, at least you don’t hear me proclaiming, “Mission Accomplished...”

CNBC Million Dollar Portfolio Challenge: #1227

It was just a matter of time before my string of good fortune came to an end, but for all practical purposes, it probably should not have been today. Still, at #1227 out of 1,441,536 contestants as of last night, I have managed to hold on to a top 0.1% rating for one more day.

Scrolling back a little, my current position is the result of a 2.8% loss in Wright Medical Group (WMGI) yesterday, putting an end to a nice run of six straight days of gains of 2% or more. As I described earlier, I had carelessly thought WMGI would report earnings before the market opened or during the day yesterday, but this turned out not to be the case. Had I held on to WMGI, I would be sitting on what is currently a 6% gain, but instead, I went back to my earnings spike potential algorithm. This handy tool had helped pick the six consecutive winners and had pointed to a couple of other big movers as well. Yesterday it spit out Atheros Communications (ATHR), currently up 7%, as the top choice. Between WMGI and ATHR, how could I go wrong? Well, I got cute and thought I might be able to get even more volatility out of i2 Technologies (ITWO), whose dangerous coiled spring cocktail includes a huge beta (over 10 on Yahoo), an equally impressive short position of 13.1 days to cover, and an implied call volatility of 60. Well, I got the volatility I wanted, but I missed out on the direction, as ITWO is trading down 28% this morning. It is only a small consolation to know that the algorithm seems to be working…

Depending upon how far I fall down the ranks today, I will make a determination whether I should roll the dice one final time with the likes of Dendreon (DNDN) in hopes of rocketing my way into the finals or just play for a respectable position, such as the top 1%. I know that this is only play money, but after having come this far, it seems silly to spend it all on one last lottery ticket.