Suitably Flip

CNBC Million Dollar Portfolio Challenge - Friday, Week 3

[Scroll to the bottom for answers to today's Bonus Bucks trivia questions.]

It's the final day of Week 3, which as you know by now, means it's effectively the first day of Week 4, since the trades you submit today by 4 pm will be the first to impact your performance on Monday.

For our group strategy participants, we're going to stick with our most recently modified pair of leveraged ETF baskets.  Each holds 50% financials, 25% real estate, and 25% Russell 2000 (each levered 2x).

1. Ultrabull (RE/2xFin/Russell):  URE, UWM, UYG, RFL (25% each)
2. Ultrabear (RE/2xFin/Russell):  SRS, TWM, SKF, RFN (25% each)

Since today's market action is unrelated to these picks (for the sake of the weekly top spot anyway), you can go ahead and allocate any participating portfolios into those two baskets whenever you like.  No allocation methodology - just make sure you've got roughly half of your participating portfolios in each basket.

Now...

As discussed yesterday, we're going to be doing something a little different going into Week 4.  As detailed by many of you in our Biggest Loser thread, a side effect of our daily hunt for hyper-volatility is that many of our portfolios have been on the wrong side of that volatility more often than not.

In the past, I've noted that that's actually good for subsequent weeks' performance, since your $62,000 diet of Bonus Bucks becomes more valuable on a percentage basis.  And it's going to be an even bigger advantage as we enter Week 4.

For any of you willing to put in a couple hours worth of work, your assignment is simple: wipe out your currency portfolio.

(Any readers from FXCM aren't likely going to like this approach, but on the bright side, it will likely acquaint many of us who haven't dipped our toe in that end yet with the process of currency trading.)

And after all, we're playing to win.

First - the rationale:  Say you've got a crappy portfolio that's down to $600,000 ($500,000 in equities and $100,000 in currencies).  Our weekly top scorers have typically been enjoying trading gains of 50-60%.  Of course, that only applies to your equities balance.  So 60% in trading gains would leave you with $900,000 at the end of the week [($500,000 * 160%) + $100,000].  The existence of your idle currencies effectively diluted your weekly gain from 60% to 50%.  Plus, the gains from your Bonus Bucks has been cut from 10.3% to 8.9%.

In other words, if you'd ditched your currencies before Monday at 9:30 am, you would've gotten a free extra 11.4%.

As our weekly top performers continue to improve (and as our cruddy portfolios become ever cruddier), this effect is further amplified.

Second - the methodology: For any bum portfolios that you want to use for this strategy, go into the Currency Trading section of the Portfolio Manager.  You're going to burn through your allotment via transaction costs.  To do so, it's quickest to trade a currency pair with a wide relative bid/ask spread.  The NZD/JPY pair works nicely for this purpose.  Click "Buy" then select NZD/JPYfrom the drop-down box.  Under amount, try 900 (with $100,000, that's about as much as you can buy).  Click OK.  Now click "Sell" and repeat, unloading those 900 contracts at a loss.

Repeat until you get an "insufficient available margin" error.  Congratulations!  You've destroyed enough account value that you can now only afford 800.  Repeat until you need to drop down to 700, 600, 500, and so on.  The step-down will take longer and longer for each tier, but bear in mind that the bigger pain in the arse this is, the less likely it is that many of your competitors outside these walls are doing the same thing.

It should take you an hour or so (depending on your clicking speed) to dwindle your account down to a de minimus value (less than $10,000).  It might literally take forever to get down to $0, so don't try it.

My understanding from the rules is that this process needs to be done by 4:00 pm today, just like the equity trades.  Currency trading picks up again at 5:15 pm on Sunday, but that's technically the start of the trading week, so any declines after that time would count against Week 4.

Once you've got one or more currency portfolios wiped out, just move that portfolio's equities into one of the above baskets.  If you've got the time, I'd suggest killing off two portfolios (especially if you've got two downtrodden ones) so you can play both sides.

No, this isn't particularly clever (and it may be something you've considered doing already), but it's got two key things going for it.  1) It's a huge pain, so I suspect relatively few folks will have bothered to actually do it, and 2) after 3 weeks of courting extreme volatility, we've now got a big slug of portfolios for which this initiative will make a major difference on weekly gains.

I'll be traveling for most of the afternoon, but email me with any questions and I'll try to respond by Blackberry if anyone's having trouble making it work.

Consider all of the above to be for entertainment purposes and not meant to be used as real-world investment recommendations.  The goals and strategies of the Portfolio Challenge are not to be confused with those of sensible investing.

---

See all related posts in the CNBC Portfolio Challenge archive.

Week 3:  Monday, Tuesday, Wednesday, Thursday, Friday
Week 2:  Monday, Tuesday, Wednesday, Thursday, Friday
Week 1:  Monday, Tuesday, Wednesday, Thursday, Friday
Pre-game:  CNBC Million Dollar Portfolio Challenge Is Back, Stragety Primer

Extra Stuff:  The Biggest Loser, Interview With Bradford Pine

To receive additional updates by e-mail, drop a line here with the word "Subscribe" in the subject header.

---

Friday December 5th

Throughout the contest, each day's answers will be at the top of the CNBC Portfolio Challenge archive as soon as the questions are published, so bookmark accordingly.

Daily Trivia:

Squawk Box:  Question: Who warned CNBC Thursday about the "centipede market"?

  Answer:  Dave Bahoric

Squawk On the Street:  Question: In his Thursday Stock Blog post, Jon Najarian disclosed that he's long on which airline stock?

  Answer:  AMR

The Call:  Question: Jane Wells reported that which footwear company threw a holiday beer party for employees of Adidas?

  Answer:  Etnies 

Power Lunch:  Question: CNBC Producer David Russell compared Christopher Cox's SEC actions to what classic Monty Python sketch?

  Answer:  The Spanish Inquisition

Street Signs:  Question: In Thursday's CEOs Sound Off feature, who slammed "the U.S. government's business model" as "unsustainable"?

  Answer:  David Walker, Peter G. Peterson

Closing Bell:  Question: In our Harvard Business School CEO slideshow, who praises a "long-term passion for learning"?

  Answer:  Jeffrey Immelt of GE

Weekly Quiz:

Question:  Calls give you the right to?

   Answer:  Buy the stock at the strike price

Comments

CNBC Million Dollar Portfolio Challenge - Friday, Week 3

[Scroll to the bottom for answers to today's Bonus Bucks trivia questions.]

It's the final day of Week 3, which as you know by now, means it's effectively the first day of Week 4, since the trades you submit today by 4 pm will be the first to impact your performance on Monday.

For our group strategy participants, we're going to stick with our most recently modified pair of leveraged ETF baskets.  Each holds 50% financials, 25% real estate, and 25% Russell 2000 (each levered 2x).

1. Ultrabull (RE/2xFin/Russell):  URE, UWM, UYG, RFL (25% each)
2. Ultrabear (RE/2xFin/Russell):  SRS, TWM, SKF, RFN (25% each)

Since today's market action is unrelated to these picks (for the sake of the weekly top spot anyway), you can go ahead and allocate any participating portfolios into those two baskets whenever you like.  No allocation methodology - just make sure you've got roughly half of your participating portfolios in each basket.

Now...

As discussed yesterday, we're going to be doing something a little different going into Week 4.  As detailed by many of you in our Biggest Loser thread, a side effect of our daily hunt for hyper-volatility is that many of our portfolios have been on the wrong side of that volatility more often than not.

In the past, I've noted that that's actually good for subsequent weeks' performance, since your $62,000 diet of Bonus Bucks becomes more valuable on a percentage basis.  And it's going to be an even bigger advantage as we enter Week 4.

For any of you willing to put in a couple hours worth of work, your assignment is simple: wipe out your currency portfolio.

(Any readers from FXCM aren't likely going to like this approach, but on the bright side, it will likely acquaint many of us who haven't dipped our toe in that end yet with the process of currency trading.)

And after all, we're playing to win.

First - the rationale:  Say you've got a crappy portfolio that's down to $600,000 ($500,000 in equities and $100,000 in currencies).  Our weekly top scorers have typically been enjoying trading gains of 50-60%.  Of course, that only applies to your equities balance.  So 60% in trading gains would leave you with $900,000 at the end of the week [($500,000 * 160%) + $100,000].  The existence of your idle currencies effectively diluted your weekly gain from 60% to 50%.  Plus, the gains from your Bonus Bucks has been cut from 10.3% to 8.9%.

In other words, if you'd ditched your currencies before Monday at 9:30 am, you would've gotten a free extra 11.4%.

As our weekly top performers continue to improve (and as our cruddy portfolios become ever cruddier), this effect is further amplified.

Second - the methodology: For any bum portfolios that you want to use for this strategy, go into the Currency Trading section of the Portfolio Manager.  You're going to burn through your allotment via transaction costs.  To do so, it's quickest to trade a currency pair with a wide relative bid/ask spread.  The NZD/JPY pair works nicely for this purpose.  Click "Buy" then select NZD/JPYfrom the drop-down box.  Under amount, try 900 (with $100,000, that's about as much as you can buy).  Click OK.  Now click "Sell" and repeat, unloading those 900 contracts at a loss.

Repeat until you get an "insufficient available margin" error.  Congratulations!  You've destroyed enough account value that you can now only afford 800.  Repeat until you need to drop down to 700, 600, 500, and so on.  The step-down will take longer and longer for each tier, but bear in mind that the bigger pain in the arse this is, the less likely it is that many of your competitors outside these walls are doing the same thing.

It should take you an hour or so (depending on your clicking speed) to dwindle your account down to a de minimus value (less than $10,000).  It might literally take forever to get down to $0, so don't try it.

My understanding from the rules is that this process needs to be done by 4:00 pm today, just like the equity trades.  Currency trading picks up again at 5:15 pm on Sunday, but that's technically the start of the trading week, so any declines after that time would count against Week 4.

Once you've got one or more currency portfolios wiped out, just move that portfolio's equities into one of the above baskets.  If you've got the time, I'd suggest killing off two portfolios (especially if you've got two downtrodden ones) so you can play both sides.

No, this isn't particularly clever (and it may be something you've considered doing already), but it's got two key things going for it.  1) It's a huge pain, so I suspect relatively few folks will have bothered to actually do it, and 2) after 3 weeks of courting extreme volatility, we've now got a big slug of portfolios for which this initiative will make a major difference on weekly gains.

I'll be traveling for most of the afternoon, but email me with any questions and I'll try to respond by Blackberry if anyone's having trouble making it work.

Consider all of the above to be for entertainment purposes and not meant to be used as real-world investment recommendations.  The goals and strategies of the Portfolio Challenge are not to be confused with those of sensible investing.

---

See all related posts in the CNBC Portfolio Challenge archive.

Week 3:  Monday, Tuesday, Wednesday, Thursday, Friday
Week 2:  Monday, Tuesday, Wednesday, Thursday, Friday
Week 1:  Monday, Tuesday, Wednesday, Thursday, Friday
Pre-game:  CNBC Million Dollar Portfolio Challenge Is Back, Stragety Primer

Extra Stuff:  The Biggest Loser, Interview With Bradford Pine

To receive additional updates by e-mail, drop a line here with the word "Subscribe" in the subject header.

---

Friday December 5th

Throughout the contest, each day's answers will be at the top of the CNBC Portfolio Challenge archive as soon as the questions are published, so bookmark accordingly.

Daily Trivia:

Squawk Box:  Question: Who warned CNBC Thursday about the "centipede market"?

  Answer:  Dave Bahoric

Squawk On the Street:  Question: In his Thursday Stock Blog post, Jon Najarian disclosed that he's long on which airline stock?

  Answer:  AMR

The Call:  Question: Jane Wells reported that which footwear company threw a holiday beer party for employees of Adidas?

  Answer:  Etnies 

Power Lunch:  Question: CNBC Producer David Russell compared Christopher Cox's SEC actions to what classic Monty Python sketch?

  Answer:  The Spanish Inquisition

Street Signs:  Question: In Thursday's CEOs Sound Off feature, who slammed "the U.S. government's business model" as "unsustainable"?

  Answer:  David Walker, Peter G. Peterson

Closing Bell:  Question: In our Harvard Business School CEO slideshow, who praises a "long-term passion for learning"?

  Answer:  Jeffrey Immelt of GE

Weekly Quiz:

Question:  Calls give you the right to?

   Answer:  Buy the stock at the strike price