Rolling the dice with investing contests

This week my son Luca, 22, was doing some investing research for the small sum he has in his Tax-Free Savings Account (TFSA) and came across an online stock contest called Horizons ETFs Biggest Winner Trading Competition. He immediately signed up, happy to learn about investing while perhaps winning some prize money in the process.

Actually, this is one of two stock picking contests that Luca entered this week. The second is the Kitco/Stockpools Stockpicking Challenge.

Horizon’s contest

The games themselves are fairly simple. For the Horizons ETF game you are given $100,000 of “fantasy funds” to start trading your virtual trading account. There are a few key rules: You can only trade ETFs listed on the Toronto Stock Exchange; you must hold four ETFs and you can only invest up to 25% of your portfolio in any one ETF. But make no mistake—there are several volatile sector funds available on their pre-chosen list as well as hedged ETFs that can add a lot of volatility and upside to your final tally. The competition runs until the end of day Friday, June 16, 2017.

This contest works a little like a practice account, the main difference, however, is you can win prizes—with real money! There’s a weekly prize of $500 to the participant with the highest portfolio return at the end of every trading week. The Grand prize of $7,500 will be awarded for the highest return in the competition overall, with $2,500 to the runner up.

But here are some things to keep in mind. These contests are designed to encourage you to take big risks, exactly the opposite of what you would do in a regular long-term investment portfolio with real money. To be successful you need to employ tactics than you would use with your own money.

Apply a little leverage

The leveraged ETFs offered by Horizons are a prime example. In a short time frame they could be the key to winning the top prize. Horizons offers several different bull and bear ETFs that promise to deliver two or three times the performance of the underlying index. Put simply, if the S&P/TSX went up 1%, a 2x Bull ETF should deliver 2% while a 2x Bear ETF should return -2%.

It’s not really important to understand how leveraged ETFs work in the case of the contest. It’s enough to simply understand that they will provide faster returns than regular stocks and bonds. Even if you don’t take the contest seriously it might be worth holding a few of these ETFs in your fake portfolio to see just how volatile and risky they really are. For fun, through the contest we invested $10,256 to buy 800 shares of HOD, Horizons BetaPro NYMEX Crude Oil Bull+ ETF, which promises to double the daily performance of the NYMEX light sweet crude oil futures contract. Less than a week in we’re down 7.5%. Ouch.

Luca was not swayed to take on more risk than he felt comfortable with and stuck to a fairly conservative portfolio. He’s holding four sector and international equity ETFs: HARC, HMMJ, HXS and HXX. As of the end of last week, he ranked 1437 out of 1625 participants—so not as easy as it first looks—but there are still several weeks to make up for lost money—or at least that’s what I tell him to keep him interested.

Kitco’s challenge

The Kitco Metals Inc., called the Kitco/Stockpools Stockpicking Challenge Contest, has a completely different focus. Kitco is one of the world’s most recognized retailers of precious metals and a specialized supplier of refining services.

Like the Horizons ETF Biggest Winner Trading Competition, the Kitco/Stockpools contest is also free to enter but the prize is $16,000 in physical Gold Bullion. (I just love the idea of winning this and seeing it arrive for Luca by courier at my doorstep.)

Again, the rules are simple: participants choose three companies from each of seven categories and can trade their picks at the end of the week between market close on Friday until Monday morning before the market opens. New participants are welcome to join the contest during this time. The contest runs for a total of 10 weeks, starting June 5^th and the two participants who build the top performing fantasy stock portfolio on a percentage basis each week will each be awarded a ½ ounce of gold bullion for a total value of $16,000.

The contest guides you through picking 21 precious metals companies, including copper, zinc, uranium, cobalt, lithium and graphite stocks. You simply check the ones you want from a pre-determined list to build your portfolio and then follow them weekly online. In the final week of the contest, the top two participants will each receive a full ounce of gold bullion, for a total of two ounces awarded. The deadline to join the 1^st round of this challenge is 6 AM (EST) Monday, June 5^th, 2017. The participant who builds the top performing portfolio on a percentage basis each week will be awarded physical gold bullion, valued at a total of $16,000.

Some winning advice

Both contests have taken stock analysis and turned it into a competitive environment that mimics the concept of traditional fantasy sports. These are risk-free platforms that have been turned it into a competitive environment that mimics the concepts of traditional fantasy sports. You can build a competitive portfolio and track its performance over the course of a contest.

If you’re interested in playing in these contests, then here are some tips before making your final stock choices. First, identify the direction of the market. Then try to determine which stocks or ETFs have the most potential to move in that direction the fastest—as you are under time pressure for these contests.

Finally, remember that these are just games—not real life. So have fun and learn a few bits of investing info along the way. But in real life, you’ll likely do much better simply sticking to a good balanced fund or passive couch potato portfolio. (See here for the Canadian Couch Potato and how it can work for your real life investments: http://canadiancouchpotato.com )

Now go and have some fun and shoot us an email at [email protected] if you win any prize money. We’d love to hear about the strategy you used. Good-luck!