Stock Picking Competition 2010!

Several of Canada’s financial blogs have a stock picking contest every year. They each pick four stocks and track the returns on a quarterly basis. Last years returns ranged from -8.8% to 81.56%, the TSX by comparison was up approximately 31%.

While I am not officially part of the competition (although hopefully they will be kind enough to let me in), I am going to take part anyways, tracking their results against mine. If you want to participate, put the four stocks you would pick in the comments below, and I will track them for you!

My stock picking strategy will be psychology based. In other words, based on peoples habits and sentiments. I use this strategy when buying and selling stocks because while prices of stocks are based on fundamentals, and ratios, etc., the prices that stocks warrant are still derived by how much individuals at a specific point in time are willing to pay for a stock. A stock can have the best fundamentals in the world, but if no one wants to buy it because it is a fertilizer company no one cares about, then the price will go nowhere. My picks are as follows.

1. Starbucks (SBUX $23.06) – Starbucks remains a part of my portfolio for many reasons. I have bought it at various prices over the years and have done quite well with it using a dollar cost averaging strategy. The main reason why I am picking Starbucks as my first pick is simple. There are very few luxury brands in the world that are reasonably attainable by the masses, that are highly addictive, and that people will go out of their way to pay more for. I will never forget the day, mid recession in minus 20 degree weather, that I stood in a 20 person lineup in downtown Calgary and watched every type of person imaginable order up their favorite frothy drinks. From executives wearing Armani Collezioni suits, to construction workers in hard hats. What made me realize just how special of a company Starbucks is however, was that there were no less than 12 other coffee shops in the same building. All cheaper, and all with smaller lineups.

2. American Express (AXP $40.52) – American Express is another one of my favorite companies. Not just because Warren Buffet owns a bunch of it, but because no other credit card has the brand loyalty AMEX does. AMEX holders will actually make buying decisions based on who accepts the card. If you are a hole in the wall restaurant and you don’t accept AMEX, there is a good chance an AMEX holder will forgo your restaurant to eat elsewhere. Trying to sell a $3000 Mac computer without the option to pay on AMEX, expect the AMEX holder to fork his card over elsewhere. How do I know this? Forget that I used to work in retail and saw it firsthand at a non-AMEX accepting store, I’m an AMEX charge card holder. That’s right, I put nearly everything on a charge card (not a credit card), and pay it off at the end of every month, just so I can rack up the lucrative AMEX reward points. Venice here I come!

3. Ford (F $10.00) – What can I say about Ford? First assembly line mass producer of the automobile, American dynasty, only North American car company that didn’t need a bailout. Ford is a sentimental brand to Americans. Last year when it neared a $1.00 share price, you could feel the disbelief. With the prospects looking good for the company, I think there is a psychological factor among investors that $40 is where this stock belongs, for no other reason than that is where it has always been. In my mind this is a stock people flock to, sound fundamentals or not.

4. Gold (GLD NYSE $107.29) – Gold is going to be my most modest play. Why am I picking it, because guys like Peter Schiff are predicting a collapse of the American dollar. Do I see that as likely to happen, no not really, but I do see people flocking to gold as more and more people start to fear the possibility. With more demand will come higher prices, which is why I am banking on gold to be the rock of my selections. To track the price of gold I am going to use the SPDR Gold Trust ETF trade on the NYSE.

Please note that the only one of these four picks that I do not already own is Gold. In no way are these recommendations, they are picks that are designed no maximize returns for a game, a game where I am not risking any money. Never take a stock tip from anyone unless you have done your own due diligence.

Quite frankly I am surprised that I didn’t pick an oil stock, we will see how that plays out.

Here are the blogs that are participating in the competition. Take a look at all of them, as they should all be in your RSS reader. If you don’t have an RSS reader, go to http://reader.google.com and get one!

Million Dollar Journey
Where Does All My Money Go
Dividend Growth Investor
Four Pillars
Zach Stocks
The Wild Investor
The Intelligent Speculator
The Financial Blogger
My Traders Journal

Good luck everyone! Don’t forget to select your top four stock picks and put them in the comments section.