Jeff Mishlove: Response to Contest Concerns

We got an email today about guest blogger Jeff Mishlove's last stock picks--and Jeff feels he wants to address the issues raised by the emailer--that perhaps other contestants have as well. A reminder, Jeff gets no compensation for his blog posts, Here he is: A contest participant has recently raised several concerns, due to the fact that the recommendations I posted on Tuesday have done so poorly – while, simultaneously, I myself was on the leaderboard and have also benefited from sales of my Handbook for Contestants. The implicit suggestion was that, perhaps, I deliberately posted lousy stock picks at the end of this event – in order to confuse the competition and gain an edge for myself.

Allow me to respond by acknowledging that my recommendations for last Tuesday were among the worst I have ever made for this contest:

MDRX Down 3.14 (-11.60%)
PCLN Down 5.77 (-9.01%)
XNPT Up 0.23 (0.56%)
OMRI Down 2.20 (-6.17%)
THS Down 2.85 (-8.92%)

Current share price:

Of course, if I had known – in advance – that they were going to be this bad, I would be a much better stock picker than I actually am. These stocks were selected using the same basic methods as the other recommendations I have made. I have been very explicit about details of my strategy in previous Million Dollar Buzz blog posts (and also in my Handbook). When the method works well, it works brilliantly.

Careful readers of my blog posts, and viewers of my CNBC appearances, will know that the strength of the method is that it is capable of picking stocks that make big moves on particular days. The weakness of the method is that, depending on the earnings results (which no outside investor can legitimately know in advance), the large movement can be either positive or negative.

In the real world, the best way to play this type of information is to buy an options straddle. This allows one to profit from a large price move in either direction. (Obviously, if I could predict in advance the direction of the large move, a better strategy would be to go either long or short. But, so far, I have not discovered a consistently reliable way to do this.)

However, in the contest one has to hope that the stocks will go up and not down. The contest allows neither straddles nor short selling. In my own contest portfolios, I relied upon the very same picks that I recommended to the Million Dollar Buzz readers. Unfortunately, that’s precisely why I am no longer on the leaderboard (although I am still hoping I can bounce back).

As I regret my own contest losses, I do regret the losses that other contest participants may have experienced from following my recommendations. But, I am certainly not nearly clever enough to have deliberately misled other contest participants for my own advantage.

The question has also been raised as to why guest blogger Timothy Sykes has refrained from entering the contest (referring in one of his blog posts to “regulations”) while I have been a contestant. I am, personally, not aware of any regulations pertaining to Timothy. As far as I know, he was simply trying to avoid any appearance of a “conflict of interest.” I guess I have not, personally, been so successful in avoiding such an appearance. But, I can assure all Million Dollar Buzz readers that my recommendations have always been sincere and that I, myself, have always followed them.

Trading and investing is, strictly speaking, a risky business. Any strategy that is capable of generating unusually large gains – such as are necessary to win the Million Dollar Portfolio Challenge – is also capable of generating large losses. There is, simply, no avoiding this basic fact. Every financial professional knows this. That is why, in the real world, risk management techniques are at least as important (if not more so), as trading strategies. Losses are a natural part of all trading and investing. Good financial professionals make sure that methods are in place to minimize these losses when they occur, so that there is always enough money left to trade another day. If there were a “first rule” of trading, this would be it.

The contest losses that I, myself, experienced as a consequence of Wednesday’s results, do not in any way invalidate the long-term usefulness of the strategies I have been employing and recommending to readers. The very same strategies that produced yesterday’s losses also put me on the leaderboard in the first place. And, while I am no longer on the leaderboard, my portfolios are showing very healthy returns for the week, in spite of the setback.

Those strategies are solid. And they are explicitly discussed in my previous Million Dollar Buzz posts and in my Handbook.

Jeffrey Mishlove is a registered commodity trading advisor. He is author of Jeffrey Mishlove’s Handbook for Contestants in CNBC’s 2007 Million Dollar Portfolio Challenge.

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