Thought I would post a bit about my current strategy for our 3-week game.
First of all, let me say that I would not pursue this line of thinking in "real life" because A) small percentage point gains get eaten up quickly by commissions with a few thousand bucks invested, as opposed to the hundred thousand I have in this game, and B) it's pretty stupid.
But it appears to be working - today, at least. I want to be in no more than 4-7 stocks at a time. I made my initial purchases based on recently strong relative price performance and leadership within their respective industries.
Whole Foods was dragging me down for a few days, so I sold it at a 3% loss and split the money between Orthofix Intl. (OFIX) and Pantry Inc. (PTRY). So far today, OFIX is dragging and PTRY is cooking. I also used margin to buy American Healthways (AMHC) and Par Technologies (PTC). Both are up.
So why did I do what I did, and why is it stupid? I'm basically chasing volume. Stocks that are moving up on high volume? I buy 'em. If they produce 2-5% gains within a day, I'm happy. If not, I dump 'em and move on to other stocks trading higher on higher-than-average volume. The logic is basic supply-and-demand. Higher-than-average volume (and I mean significantly higher volume - several hundred %) implies that a large number of buyers (probably institutional) are chasing after a relatively few number of shares. This drives the price up. If I can get in on this before all these large buyers-and-sellers are satisfied, there's likely some cash in it for me.
But again, 2-5% on $100K is worth the $19.95 commission. Making $20 to $50 on a $1000, and having a big chunk of that eaten up in commissions? Why bother. Also, note I am blatantly chasing these returns. The cat is already well out of the bag by the time I buy, so I am missing out on the biggest gains - and setting myself up for a scenario where there's an early morning runup, then I buy, then people start selling and I lose my dough. Not a plan for long-term success.
But for 3 weeks? We'll see. NVDA and OFIX better shape up, or on the chopping block they go by the end of the day.
2 comments:
I sold NVDA and OFIX a couple minutes after posting. They were dragging me down.
Out of the 4 stocks I purchased today, 2 of them were up 5.28%, one was up 4.71% and one was up 4.37%. My holdover from last week, MDRX, held me back. I ended up 1.89% on the day, and am now up 3.34% overall. I'll take that, but today was a good day for the markets - I doubt I would have done as well on a down day.
James also pointed out that had I bought an S&P 500 index fund last Monday, I would have done better - with far less commission paid. So that sucks, but is the efficient market theory in action. However, I didn't start trading until last Thursday, and I think I've beat the S&P since then.
Tomorrow's another day. We'll see what happens. Lots of trading going on today in the group. Post your thoughts!
NVDA just announced that they will be providing the graphics technology in the new PS3. Their stock doesn't seem to be responding in a predicatable manner, though. Maybe that was a good decision to let them go.
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