Wednesday, May 23, 2007

CNBC Loser’s Bracket:: #1056 (Top 1%)

For those who may be interested, the CNBC Million Dollar Portfolio Challenge is winding down this week, with 20 top performers duking it out for $1 million paid out over many years through an IV drip, while the Second Chance Showdown contestants get another shot at glory in the loser’s bracket – with a Sony home entertainment system as a consolation prize to the winner.

I never had a chance to properly chronicle the true extent of my rise and fall in the first round of this contest, as CNBC wiped away the details before I do a proper post-mortem. All I know is that after peaking at the top 0.08%, I fell down to about the top 11%, finally finishing something like 200,000th, perhaps even lower.

The good news is that the contest gave me an opportunity to test some ideas about how to find stock that were about to make a significant move. Since the end of the contest fell in the middle of earnings season, I focused on companies that were due to report in the next 24 hours and published the details of my formula and some associated free public information sources in “How to Find the Spiker Before the Earnings Announcement” on May 9th. Recently, I went back and evaluated the 16 companies that I invested in as a result of that earnings spiker formula and discovered that the minimum next day move for those companies was 1.5%, while the maximum move was 30.2% (down in this case), with a mean move of 5.6% and a median move of 3.7% – all of which is based on a one day holding period.

Armed with this information, I thought I should put the same formula to work again in the loser’s bracket. Once again it has been successful, with my last four picks being a 3.0% gain in PETM, a 7.7% gain in FMCN, a 5.3% gain in TSL, and a 3.0% gain in SNDA. The bottom line is that this performance has put me in the top 1% of the current contest at #1056.

Before I start patting myself on the back, however, it looks like I may have shot myself in the foot. Shanghai-based Shanda Entertainment was a solid earnings pick and turned in a very strong quarter, but it appears I was foiled by my own Lost in Translation moment and accidentally sold prior to earnings. To make matters worse, I jumped from the Shanda rocked onto GameStop (GME), whose doubling of revenues was offset by lukewarm guidance. I got my volatility again, but GME is currently trading down 3.6% on the day.


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