Million Dollar Challenge
By: Hubert Crowell
I have entered CNBC's Million Dollar Challenge, a 10-week contest to see who can invest a
million dollars the best. My plan is to use the 80/20 Principle to pick the best performing stocks
for my portfolio with an added edge, forward view.
The contest runs 10 weeks starting March 5 and ending May 11, I am entering two weeks late Monday, March 19. Here are some of the investment rules that I will try and follow:
Note that by the 80/20 rule it is usually true that 20 percent of a portfolio contains 80 percent of
the gains. Always look for the strongest 20 percent to beat the 80/20 rule. Keep reworking your
portfolio to keep the best few and hold on to them.
A few ways that I will be trying to use the 80/20 rule and find the few best companies:
1. For the short term (this 10-week contest), I will be looking at sectors with the highest revenue growth in the last three months.
Financial
Technology
Services
Transportation
Energy
The best performing sectors in the last three months have been:
Consumer +7.24%
Basic Materials +6.38%
Capital Goods +4.77%
Utilities +1.99%
Services +0.74%
Of the top revenue growth and best performing sectors are services. So I will be favoring
services in my quest for the best companies. Especially retail drugs +13.5% over the last three
months.
2. I will first look at the previous day of trading that was a down market. In that down market
look for the top 10 to 15 gainers by percent and revenue.
3. From this list, look at the performance of each over the past three months. I am looking for a low curve with a slight up turn.
I will be buying an equal amount in value of each of these stocks.
4. Highlight the ones in services and retail drugs. I will buy twice the amount in these stocks.
5. The last tool that I will use, I will refer to as forward view. I took a few moments and cleared
my mind, then thought about the chart of the highest gainers. Then waited for any clues that may
come to my mind about who would become the highest gainer on the next trading day. That
night I dreamed about trains. I then thought about the congestion on the highways. I will buy
four times the amount in the rail stocks in my list.
On my first day in the Million Dollar Challenge I will be investing $672,240 on seven stocks to
create my portfolio. I will be tweaking my list and adding new stocks over the next few weeks
following the guidelines that I have set. With $327,760 in reserve I will also be buying more of
the best performers that look like they still might have a good run up.
If you want to check out how well I am doing you can watch for my name on the published,
(I did not make the top ten list,) CNBC list of highest players. Look for "Hubert Crowell in Georgia"
Below is my starting portfolio on 3/19/2007 at 4:00 PM, I will be investing the remainder of my
funds on 3/20/2007 at 4:00 PM.
I will be out of town for three days, so I will reevaluate my stock picks on Friday and try to make
adjustments before the Friday 4:00 PM dead line.
Day 4 of my entry into the Million Dollar Challenge and I am in the top 39%. Not bad when you
consider that most everyone else has been in the contest for 13 days.
Following the 80/20 rules, I am reviewing my stock picks to look for the strongest 20%. And I
have two stocks with a P/E of slightest over 17. I have also found another strong stock with a
P/E of only 12.06
United Technologies (UTX) with a current P/E of 17.41 is a little higher than I would like, but it
may go up another couple of points. I will watch it another day before making a decision.
Hewlett Packard Company (HPQ), has a current P/E of 17.35 and does not look like it is in a hurry to go up. I am going to sell it and buy the Mylan Labs with a P/E of 12.06.
Mylan Labs is starting a run up and with the strong drug market they fit into my portfolio.
Based on my forward view I am leaning toward the railroad stocks that meet qualifications that I have set. Price lower than a recent high and starting back up, and a P/E of less than 17. The news for rails is not so good, but I have made some gains and will be watching the sector closely.
NEW YORK - Shares of railroad operators were mixed in Thursday's session after industry executives confirmed expectations for a soft first quarter and said again that freight demand should pick up in the second half of the year.
My holdings in the drug sector will be expanded to include Mylan Laboratories Inc. I already hold Pfizer Inc. and I would like to see who comes out on top they both have a low P/E.
NEW YORK - A Federal Court of Appeals ruled against Pfizer Inc.'s patent on blood pressure medication Norvasc on Thursday, boosting shares of Mylan Laboratories Inc., but a Goldman Sachs analyst said Friday the ruling's impact on Mylan is not yet clear.
I plan to drop Hewlett Packard as their P/E is too high.
Cummins Inc. (CMI), makes diesel engines and has made some new developments using alternative fuels. Although it is at a new high, it still has a P/E of only 10.4. I will hold this stock to see how far it will run up on the good news
Cummins Inc. (NYSE:CMI) today (03/21/07) announced the approval of biodiesel B20 blends
for use in its 2002 and later emissions-compliant ISX, ISM, ISL, ISC and ISB engines. This
includes the recently released 2007 products.
I am also holding Walmart for the time being.
Conclusion: I have learned a few things from this contest.
1. It is hard to beat the Growth-Stock Mutual Funds with individual stocks.
2. The risks are high and you should only be investing in individual stocks if you can aford to take the losses.
I narrowed down my stock selections as the contest progressed and here is my final results.
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