I am currently taking part in a stock picking competition in South Africa. It has some great prizes, and it is fun. It runs over 8 months, and each month there is a cash prize for the top 3 places. First monthly prize is approximately US$2000 (R30000), second $1000, third $350. After 8 months, the person who does best overall, based on your position each month, wins a vehicle worth about $25000, so not too bad at all!
You can see a link here to the competition leaderboard, (I am entered as DividendTycoon (what else!) and out of the roughly 1250 entries I am currently (although it changes minute by minute) around 17th place for June) http://www.sharenet.co.za/v3/stockpicks/index.php?facebook=, and 5th in the overall competition (click on http://www.sharenet.co.za/v3/stockpicks/index.php?id=3&facebook=). I am more than happy with this as I am certainly still in with a shot at the vehicle. The great thing is that you make your 5 stock picks, and then you do not have to do anything else for the month, there is no active trading other than picking which 5 stocks you believe will do best that month. The only downside is that it is slightly addictive tracking my movements up and down the leaderboard, and in fact it is this that gave me the idea for this post.
What have I learnt?
- The short term is meaningless when it comes to picking stocks. The changing of positions on the leaderboard over a month is quite eye opening. I have gone from being in the top 100 places, dropped to 800th, then back up to 13th place over the course of a month, others have been even more volatile. It is simply too short a time frame to know what a stocks performance will be. This is why I believe selecting good stocks for the long term trumps day trading anytime. Over any month you may lose money investing in Starbucks, but will you lose over a decade?
I do believe there is a place for trading in order to generate extra capital, but your time frame should be more than a month, and you should do the same research on the stock as you would as if it was a long term stock. The stock that is doing best for me this month, a hotel and casino stock, Sun Interational (SUI) is up 22% this month, at the time of writing. It is part luck, but I also felt it was simply too cheap based on my fundamental research, and while not guaranteed, I felt it had a good chance of rising over the month.
- Anybody can be lucky in the short term, or unlucky. Quite simply you can be lucky with some of your stock picks, and for others you can be very unlucky. Some great blue chip stocks that people have picked in the competition have gone down over 10% in the month, but look at any chart over 10 years and they are up many hundreds of percent. My girlfriend happens to be in 9th place in the overall (not June) competition. She picked her own stocks. Now I am sure she will not mind me saying that stock picking is not her strong point, her entry is little different to her odds of winning a lottery with around 1250 participants. However, she is doing remarkably well! That is mostly luck, and with any luck she will not read this post..she has named herself “Super Demagogue” after all..
- Day trading must be exhausting. I must admit that I have spent too much time the last few months getting live prices on the stocks I hold for the competition, as well as those of my closest competitors. Refresh, refresh, check the prices, check my position, it really is exhausting. It leaves less time for research and reading. This makes it not much different from gambling. I think I would be a much better investor if I turned off the stock ticker, or more appropriately shut off my online portfolio for the majority of the day. There is really very little point in the hourly monitoring of the prices of stocks you wish to hold for at least 5 years. The time would be far better spent researching new stocks or industries.
- I need to know the shares I invest in. As I said in the last point, I was watching my competitors stocks as well as my own. A week ago the competitors who held gold mining stocks suddenly raced up to the top of the leaderboard. It was rather disheartening as I watched my position slip further and further down. This led me to finding a website which displayed the gold price in real time. I could see the problem, the gold price had suddenly spiked over $20 due to a jobs report in the USA… and now it was affecting my competition! The world is an unfair place sometimes.
Anyway, fast forward a week and I sat in silent joy as I watched the gold price plummet back down, and my position started going up. The point though is, that I could never invest in gold shares, or any commodity shares for that matter, simply because I feel I am in no way in control of my investment. I could not tell you whether gold will be $200 dollars more per ounce this time next year, or $200 less. Will Nestle sell more instant coffee next year? Yes, they will. I certainly know I cant stop drinking the stuff very easily.. An increase in the Nestle dividend will follow no doubt. I like to know my stocks and be able to fairly accurately predict where they are heading. Dividends flow from profits, so this is important. Do not let your dividends be at the mercy of inflation reports, federal reserve decisions or the number of unemployed people in Japan.
- Anchoring is dangerous. Anchoring is believing that what happened in the past will continue into the future. I have noticed that the stocks that have done the best in the previous month seem to be the most selected stocks for the next month. This may in certain instances be justified, but on the whole it is not a good idea to buy a stock because it has already gone up. If anything, look for the stocks that have recently bombed out. As a Dividend Tycoon, you have to think differently, look for what offers value, not what is currently popular.
Things change rapidly in this competition, so by the time you read this I may have bombed out this month. But the final thing I learnt from the competition is that I really really want to win that vehicle! However, I have realized my chances are probably slim due to the element of luck involved and the difficulty of trying to make short term predictions, but you never know, and boy that vehicle would be a very special dividend!