The contest’s primary audience, I believe, are individual investors who watch CNBC’s investor productions, like Mad Money and Fast Money. They’re probably hoping this contest will strengthen the community behind such shows. However, their contest is not an exact replica of the market. It sets artificial restrictions, which are probably meant to prevent contestants from gaming the system (even though it still happens). These restrictions are (straight from their FAQ):
- “There are two ways to earn bonus dollars in this contest.” Trivia Questions & Refer-A-Friend.
- “To be eligible for trading in the Contest, stocks must have a market capitalization of at least Five Hundred Million Dollars ($500,000,000) as of the close of the markets on March 2, 2007.”
- “Limit orders, open orders, short selling, margin buying, and the trading of derivatives, options, bonds, mutual funds, exchange traded funds or other securities is not permitted.”
- “Participants can enter trades seven days per week, at any time except during the period each day, if any, when maintenance is being performed on the Site.” (And maintenance seems to occur rather frequently on their site.)
- “No commissions will be charged for trades.”
- “Each participant can make a maximum of fifty (50) trades per day.”
- “Trades submitted on trading days (Monday through Friday, other than market holidays) prior to 3:59:59 p.m. will be priced at the stock’s closing price for such day.”
- “Dividends, whether stock or cash, will not be processed or reflected in the Contest.”
And probably one of biggest and most influential deviations from reality is how success is measured:
- “The Participant with the highest percentage gain in his/her total portfolio value during such week will be declared the weekly winner for that week.”
What does this mean?
You don’t have to make the most money, you just have to make the highest percentage gain. According to Jon Markman of MSN Money, this can be done “by simply picking the 10 lowest-priced stocks that the contest allows, with absolutely no other criteria.” Then, according to Project Stocks: “Only buy 1 or 2 stocks at a time. Put a million bucks in 1 stock or put $500,000 in each of 2 stocks.” (Project Stocks also includes more great tips on playing this game.)
After you’ve done that, create a bunch of accounts, a la the Nancy Beamount Controversy. While this was denounced as cheating, CNBC’s official stance is that it’s perfectly acceptable. Says CNBC’s Mark Koba: “I can tell you all that–YES–it is perfectly all right and within the rules to have multiple portfolios, and that no one is breaking the rules by doing so.”
Does this contest speak to their core audience: the individual investors? Though it’s mostly ancedotal evidence, it seems that many individual investors started playing the contest the way I did (trading as if it’s a real market) and aren’t doing well – or at least aren’t up on the leaderboard. Which is probably why many of them are unhappy & complaining right now.
So what am I going to do with my CNBC portfolio? Consolidate all of my money into one or two stocks, then create a bunch of other accounts. This contest isn’t about real investing & trading, it’s just a betting game: Which low-priced stock do you think will increase the most week-over-week, percentage-wise?
P. S. Rats, where did that Refer-A-Friend link go? Anyone know?