CNBC Million Dollar Portfolio Challenge: Monday, Week 2 - Beaumonts and Bankruptcies

Update:  This is a post from the 2007 Portfolio Challenge.  If you're looking for posts on the 2008 contest, click here.

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As I mentioned over the weekend, the leading manager in the CNBC portfolio challenge appears to be a woman named Nancy Beaumont - either the most popular name in California, or a participant who adopted the strategy of signing up for dozens (or possibly hundreds (if not thousands)) of accounts.  As I noted at the time, this strategy didn't appear to be explicitly forbidden by the contest rules, though a commenter on that post noted that CNBC's Dylan Radigan stated on air that duplicate accounts would indeed be deleted.

As of today, the site still does not certify a week 1 winner, though Beaumont remains atop the leaderboard.  This morning on CNBC's "Squawk Box", co-anchor Joe Kernan made multiple comments about Beaumont's multiplicity, but didn't say who would take home the first golden ticket, only offering that Beaumont "appears" to have put up the biggest gain in the first week.  (That contest-leading gain, incidentally, was reported to be 64.5%, slightly below the 71% I'd spitballed.)  I assume Beaumont(s) and the network are in the midst of a heated argument about whether what she did was cheating.  Given the broad discretion described in the "Participant Behavior" section of the rules, I'd wager CNBC is likely to win the argument and Beaumont is soon to be booted once various GE lawyers have assured themselves they're in the right.

Assuming all the Nancy Beaumonts are cleared away, the apparent winner of week 1 (and the first to score a ticket to the million dollar final round) will be Colleen Ellsworth, who, in a comment on the previous post, confirmed there is only one of her, "because like most other people, I read the rules, which imply to me only one account is acceptable."

As for me, after a roller coaster first week during which I sought (and found) all kinds of volatility, I begin week 2 under simiarly frenetic circumstances.  I pushed $1.1 million into New Century Financial (NEW) at the market close on Friday, not because I was optimistic about the company's prospects, but because of the opportunity for superlative volatility presented by the 78% sell-off the stock endured last week, as the sub-prime lender announced a torrent of very bad news that could well herald its bankruptcy.

The promise of Monday volatility did not disappoint.  Sadly for me (and the many other participants toying with NEW, judging by its #1 spot on the most active list), matters only worsened today, as the company announced that all of its lenders had either pulled or announced their intention to pull their financing.  This revelation looked to cut the stock's already diwndled value in half again.  Pending additional news, the NYSE has suspended trading in the stock.  This, in turn, is bound to usher in a whole new round of rule interpretation and contestant carping.

CNBC states it will process special and corporate actions, including "stock splits, mergers and acquisitions, halted/suspended trading, delistings and ticker symbol changes."  In extended morning trading, just before NEW was halted, it was trading about 50% below its Friday close (which would obviously butcher this week's returns for myself and any co-participants in the NEW boat with me).  If the stock gets delisted, however, the rules state, "it will automatically be sold at its last trading price prior to the delisting, as such price is provided to the  Site."

This might turn out to be a delightful redemption.  My Ameritrade Streamer shows what appears to be a regular session NEW trade at $1.66 (down 48% from Friday's close) just after 9:30 am.  Yahoo! Finance, on the other hand (which receives quote data directly from the NYSE), reports the last regular session trade to be $3.21 at 4 pm Friday.  CNBC's official contest quote provider is Wall Street On Demand, an independent data provider which (bless its heart) also reports NEW's last trading price to be $3.21.

Somewhat optimistically, it seems to me that so long as the NYSE gives NEW the axe before unhalting trading, any NEW positions ought to be liquidated at Friday's closing price (in my case, fully washing away this disastrous pick).  The question is: assuming the stock is delisted, will such positions liquidate at the close today, enabling participants to make new purchases at today's close?  Since participants can only reallocate once per day, having access to each discrete trading window is crucial.

A number of participants submitting comments to earlier posts have reported having problems just getting normal trades processed due to site problems.  I know I'm still waiting on $2,000 Bonus Bucks from last Tuesday and have yet to receive a response to any of my Customer Care e-mails.  Plus, we're obviously still waiting on a resolution to the thorny Beaumont situation.  With the considerable turmoil that's already hampered the contest in the normal goings, I'm therefore not banking on a proper and timely resolution to the New Century issue, even if things do go my way and the stock is eventually delisted (particularly as it may take the NYSE a while even to submit a delisting application to the SEC, during which time those of us with NEW positions will presumably be left to languish with frozen positions).

The wost case scenario is that the NYSE leaves NEW suspended for several days (leaving NEW-holding CNBC players frozen out), then agrees to let it start trading again, at which point it could officially tank during regulation play, possibly spoiling the week 3 prospects of any unlucky holders.

CNBC ought to have an update on all the convoluted and frustrating action sometime during Power Lunch, likely around 1:30 Eastern.

Previously:
CNBC Million Dollar Portfolio Challenge: End of Week 1
CNBC Million Dollar Portfolio Challenge: Wednesday, Week 1

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Update:  This was posted by CNBC's Mark Koba on the new official blog of the portfolio challenge this afternoon.

This Week's Top Leader And Why She's There

Well--the first week of the Million Dollar Portfolio challenge is over--so let's see where we stand. Nancy Beaumont sits on top of the leader board with a portfolio value of $1,645,296.56 or a weekly gain of 64.5%. Nancy has mutltiple portfolios registered for the contest, and she holds the top 3 spots in our list, with a total of 10 portfolios within the top 25, and they are markedly similar.

Of interest is that Nancy's top 3 portfolios are currently all in cash. She had no pending buy orders as of Friday and she always max's out on bonus bucks, and not all leaders have.

What's really of interest - and not addressed - is whether this situation is verboten.  Judging by Koba's post, the contest administrators don't seem to have a problem with it (though they still don't list anyone as the week 1 winner) and appear even to admire the strategy.  I've written Koba, asking him to clarify.  If participants are permitted to maintain an unlimited number of accounts, I have a feeling a lot of strategies are going to change in week 3.