the best ETFs (Investor Place)

The 7 Best Index Funds for Your Money

by Kyle Woodley | June 10, 2014 11:00 am
Wall Street’s “smart money” has really been making a case for some of the market’s best index funds.
[1]Months ago, Warren Buffett drew headlines for saying the money he plans to leave behind for his wife should be mostly sunk into a low-cost S&P 500 index fund. (For the record, he prefers Vanguard’s offerings, which likely means the VOO ETF.) More recently, Charles Schwab’s (SCHW[2]) namesake founder said that index funds were right for 98% of Americans. (You’ll be surprised to find that Chuck gave a mention to Schwab’s “1000 Index.”)
And it’s pretty hard to argue with them.
After all, index funds can offer portfolio stability in a pinch, meaning even the most novice investor can do right just by stocking up on a few of the best index funds the market has to offer. Whether it’s an index-tracking mutual fund in your 401k, or a few ETFs in your IRA, you can throw together hundreds of stocks, some commodities, bonds — you name it! — into your retirement plan without breaking a sweat or dropping thousands of dollars in trading fees.
Which funds to buy ultimately is up to you — your investment horizons, your risk tolerance. But if you’re looking for a place to start, consider this list of seven of the best index funds that will tackle most of the globe, and will position you in both growth and income.

Best Index Funds – Vanguard S&P 500 ETF (VOO)

[4]Index: S&P 500 (American large-cap index)
Expenses: 0.05%
The brightest minds on Wall Street have a nagging problem – they can’t beat the market. Hedge funds have been underperforming the S&P 500 for years on end. More often than not, mutual funds can’t get over the hump, either.
Sounds like the market is a pretty formidable investment, then, huh?
It is. Including dividends, the S&P 500 has returned 9.45% annually over the past 20 years – an amount that puts the vast majority of fixed income to shame.
What’s great is that investing in the S&P 500 couldn’t be easier — or cheaper. The SPDR S&P 500 ETF (SPY[5]), iShares Core S&P 500 ETF (IVV[6]) and Vanguard S&P 500 ETF (VOO[7]) all allow you to “track” the S&P 500 — that means positions in Apple (AAPL[8]), Exxon Mobil (XOM[9]) and the rest of the gang. You not only get access to the capital gains of the group, but also just less than 2% in dividends at current prices.
And all three funds provide this for less than a dollar for every $1,000 invested.
So why the VOO over the IVV and SPY ETFs? More principle than anything else. Investing in an S&P 500 is truly one of the cheapest ways to diversify your holdings in a hurry. So if all else is equal (which it is — all three funds all simply track the S&P 500), why not go with the one with the lowest total expenses?
And at 0.05%, VOO takes the pricing gold.
Read more about the VOO here.

Best Index Funds – iShares Core S&P Small-Cap ETF (IJR)

[11]Index: S&P Small Cap 600 (American small-cap index)
Expenses: 0.17%
The S&P 500 is great because it’s a host of large-cap stocks that offer some stability, some dividends and decent growth. That’s why you’ll want to add small-cap stocks to supercharge your growth.
Small-cap stocks are naturally riskier than their larger counterparts. Many of them are newer businesses that aren’t necessarily as battle-tested as the blue chips. Adding to the risk is the fact that their financial resources are simply smaller — debt’s harder to come by, and cash usually is spent growing the business rather than sitting in a vault for a rainy day.
On the flip side, though, it’s a heck of a lot easier to double revenues when you’re a $1 billion company than when you’re a $100 billion company. And financial growth more often than not begets stock growth, meaning that when small-caps charge ahead, the gains can be outstanding.
One of the best index funds to harness these fiery upstarts is the iShares Core S&P Small Cap ETF (IJR[12]). This ETF holds 602 small-cap stocks including biotech stock Questcor Pharmaceuticals (QCOR[13]) and IT shop Arris Group (ARRS[14]) — a pair of companies that have more than doubled in the past year.
While there are a number of small-cap funds out there, IJR has boasted some of the best returns on a consistent basis, and Morningstar rates it four stars — better than the iShares Russell 2000 ETF (IWM[15]), which tracks the most popular small-cap index, the Russell 2000. IJR also features a low expense ratio of 0.17%.
Read more about the IJR here.

Best Index Funds – Vanguard FTSE Developed Markets ETF (VEA)

[17]Index: FTSE Developed ex North America Index (Global, developed-market index)
Expenses: 0.09%
You’ve got the U.S. pretty well taken care of between VOO and IJR. Next up — the world.
The Vanguard FTSE Developed Markets ETF (VEA[18]) is one of the best index funds for tapping into the developed markets of Europe and Asia.
If you’re new to the term, the quick-and-dirty explanation of “developed market” is simply a country with advanced economies with higher incomes and regulated markets. The U.S., for instance, is a developed market. Kazakhstan, while an Olympic boxing powerhouse, is not a developed market.
The VEA is much like the SPY in that you’re being offered stable, blue-chip businesses that even throw off nearly 3% in dividends every year. The biggest difference is that these firms are headquartered in big European or Asian countries, but even then, many of these businesses are highly international in nature. Top holdings include Royal Dutch Shell (RDS.A[19], RDS.B[20]), Nestle (NSRGY[21]), Toyota (TM[22]) — they’re based in Netherlands, Switzerland and Japan, but all selling products right in your back yard.
Read more about the VEA here.
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Best Index Funds – iShares MSCI Emerging Markets ETF (EEM)

[24]Index: MSCI Emerging Markets Index (Global, emerging-market index)
Expenses: 0.67%
Just as you want to find stability and growth by pairing large caps with small caps, so should you find stability in developed markets and growth in emerging markets (EMs).
The term “emerging” refers to the higher growth but relatively lower amount of stability in up-and-coming markets. The thought is that you have countries with burgeoning populations, escalating middle classes with more spending power, but the incomes aren’t yet up to par with higher-income countries — they’re closing the gap, though, which bodes well for the companies in those markets.
The banner EM countries are the “BRICs” — Brazil, Russia, India and, of course, China — but also include countries such as South Africa, South Korea and even Mexico.
The iShares MSCI Emerging Markets ETF (EEM[25]) is the most ubiquitous of the emerging-market ETFs, holding 800-plus EM companies. And don’t let the “emerging” moniker fool you — there are some serious players in the EEM ETF. For instance, there’s a good chance you have either a Samsung (SSNLF[26]) Galaxy smartphone, or maybe one of the company’s appliances in your home. You’ve probably never heard of Taiwan Semiconductor (TSM[27]), but you’ll be using its products if you buy an iPhone 6 or iPad Air 2 this year[28].
Read more about the EEM here.
Next Page[29]

Best Index Funds – Global X Next Emerging & Frontier ETF (EMFM)

[30]Index: Solactive Next Emerging & Frontier Index (Global, emerging- and frontier-market index)
Expenses: 0.58%
Most of the funds in this article are widely considered to be among the best index funds in their group, and have been for a while. The Global X Next Emerging & Frontier ETF (EMFM[31]) isn’t nearly as established (it launched in late 2013), but it’s a personal favorite of mine because it offers a great combination of the growthier side of the world.
You see, while the aforementioned BRICs are considered “emerging” markets by many, their economic growth has slowed in recent years. Thus, investors looking for the greatest international growth potential are starting to move into other less-ballyhooed emerging markets, and even “frontier markets[32]” — riskier but more rapidly growing than even their EM counterparts.
EMFM caters to those investors, shunning the likes of China and Russia to offer heavier exposure to countries such as Malaysia, Mexico, Indonesia, Turkey and our boxing buddy, Kazakhstan.
Is EMFM a substitute for EEM? Yes and no. If you’re looking for one single place to get “emerging” growth, then you’re certainly choosing between the two. However, the two funds do provide very different global exposure, so investing in both isn’t necessarily a bad way to use your money.
Read more about EMFM here.
Next Page[33]

Best Index Funds – Vanguard Total Bond Market ETF (BND)

[34]Index: Barclays U.S. Aggregate Float Adjusted Bond Index (Broad U.S. bond index)
Expenses: 0.08%
There are scores of different bond flavors — Treasuries, munis, corporate investment-grade debt, junk — with varying amounts of safety and yield. But at their most base level, most people invest in bonds for the interest income.
Vanguard Total Bond Market ETF (BND[35]) invests in a wide swath of these bonds (though it’s heaviest in Treasuries) with a broad range of maturities to provide investors with a relatively stable investment that offers a modest yield.
As of right now, BND provides an SEC yield of 2.1% — nothing to scream about, but that’s fine. The important thing to note about BND and other modestly yielding debt investments is that you’re not necessarily trying to grow money — just preserve it. That’s not necessarily important to do when you’re younger, but when you have fewer years until retirement, it’s good to start locking down some of your money and collecting interest.
Note: If you’ve noticed a few Vanguard funds, there’s a reason — Vanguard is the low-cost king of funds, be they mutual or exchange-traded. BND is among the best index funds you can get on the cheap, at just 0.08% in expenses.
Read more about BND here.
Next Page[36]

Best Index Funds – iShares U.S. Preferred Stock ETF (PFF)

[37]Index: S&P U.S. Preferred Stock Index (U.S. preferred stock index)
Expenses: 0.48%
However, there is one fantastic source of not just stable income, but substantial, stable income: preferred stocks.
If you want a primer, you can check out my gush-fest on preferred stocks here. But in short, preferred stocks are often referred to as a “hybrid” security because they feature some traits of stocks (they represent equity, you can buy them on exchanges), and some of bonds (they pay a fixed dividend, and they don’t have any voting rights).
Also like bonds, you invest in preferred stocks for the income – and boy, do they throw off a lot of it.
The largest preferred-stock ETF out there, the iShares U.S. Preferred Stock ETF (PFF[38]), boasts a fantastic yield of 6.5% for just 0.48% in fund expenses. It holds more than 300 preferred stocks, most of them representing companies in the financial, real estate and insurance sectors.
You won’t get rich overnight investing in PFF, but reinvesting 6% in dividends every year and sitting back while compounding does its thing will give you a sizable pot of money at the end of the rainbow. Or, if you’re already near retirement, the monthly dividend payout makes a great source of regular income.
Read more about PFF here.
Kyle Woodley[39] is the Deputy Managing Editor of InvestorPlace.com[40]. As of this writing, he was long PFF and VOO and may initiate a position in EMFM within the next 30 days. Follow him on Twitter at @KyleWoodley[41].

 

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Fidelity Fund Picks (Kiplinger)

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Best-Performing Fidelity Mutual Funds

 

The Boston behemoth offers hundreds of choices. Here are our favorites.

Updated October 2013
Follow @Kiplinger

Fidelity has a mutual fund roster filled with stalwarts: portfolios that consistently beat their peers over time, run by solid managers who stay put for decades. Will Danoff, for instance, has managed Contrafund for 23 years. Joel Tillinghast has been at Low-Priced Stock for 24 years. Both Contra and Low-Priced are members of the Kiplinger 25, the list of our favorite no-load funds. But Fidelity has several other funds that are run by an emerging group of stars and that are also worth a look. Here is a rundown of our favorites at the Boston-based behemoth (all figures are through October 16).

 

Stock funds

Blue Chip Growth (symbol FBGRX). This large-company growth fund often veers more toward the “growth” part of its name than the “blue chip” part. For example, some of its best-performing-stocks over the past 12 month are such highfliers as Gilead Sciences, the biotech firm (up 92% over the past 12 months), carmaker Tesla Motors (554%) and Green Mountain Coffee Roasters (201%). Of course, bigger, more-established names that fit the fund’s blue-chip mandate are part of the portfolio, too: Apple (-22.9% over the past year), Coca-Cola (0.3%) and Procter & Gamble (13.5%), to name a few.

 

Manager Sonu Kalra says many of his fund’s stocks are high-quality names, but others are moving toward blue-chip status. Since Kalra took over the fund in July 2009, it has delivered a 21.3% annualized return, beating Standard & Poor’s 500-stock index by an average of 3.2 percentage points per year and the typical large company growth fund by an average of 4.4 points per year. But shareholders have to be comfortable with a bumpy ride: The fund has been 14% more volatile than the S&P 500 over the past five years.


Contrafund (FCNTX). With a whopping $101 billion in assets, Contrafund is one of the biggest mutual funds in the country. But manager Will Danoff doesn’t sweat the size. He has guided the fund with seeming ease since 1990, focusing on large companies that he believes have above-average growth prospects. Though many large-company funds of a similar size end up resembling the S&P 500—and become so-called index huggers, unable to squeeze out market-beating returns—Danoff hasn’t fallen into that trap. Yes, his fund’s three-year record trails the market by a hair: 15.1% annualized for Contra compared with 16.0% for the S&P 500. But so far this year, Contra has outpaced the S&P 500 by more than one percentage point.
Danoff is willing to let his winners run and to hold on. When Apple was running high in 2012, Danoff’s stake in the firm accounted for 8% of Contra’s assets (he’s since sold some of his shares, and with the stock’s pullback in price, it now represents 3.9% of assets). His go-anywhere mandate probably helps on that front. Danoff can invest in small companies, large companies and foreign companies; at last report, nearly 9% of the fund’s assets were in overseas companies, including Bank of Ireland (up 137% over the past 12 months) and Canadian Pacific Railway (up 43%).

Leveraged Company Stock (FLVCX). When borrowed money works in investors’ favor, it looks like this: Shareholders put $1 into a company, the firm borrows an additional dollar to put to work in its business, and shareholders get twice as much profit for every buck they invest. That’s the kind of leverage that manager Tom Soviero is trying to tap into with Leveraged Company Stock. He buys stock in firms that manage their debt smartly, focusing on those that generate plenty of cash, that are run by management teams with good long-term business plans and that have a catalyst to propel a stock higher in the years ahead.
Soviero has experience with leveraged companies: He used to run a junk bond fund. Instead of studying these companies alongside the other stock portfolio managers and stock analysts at Fidelity, Soviero sits a few floors away with the high-yield debt team. “He has a unique vantage point that’s helped him generate an extraordinary record,” says Brian Hogan, the chief of the stock-fund group at Fidelity. Indeed. Since Soviero took the reins at Leveraged Company Stock in July 2003, the fund has generated an annualized return of 13.1%, beating the typical midsize-company blend fund (those with a blend of value and growth attributes) by an average of 3.5 percentage points per year. But hang on tight if you buy this fund because things can get rough. The fund lost 54.5% in 2008, more than 15 percentage points behind its peer group and 17.5 points behind the S&P 500.

Low-Priced Stock (FLPSX). This fund has been hugely successful since its late 1989 launch, boasting a 16.8% annualized return since inception. That beats the typical midsize-company blend fund by an average of 1.9 percentage points per year. The fund now has a whopping $44 billion in assets, making it the biggest midsize-company fund in the country. But Fidelity has a way of dealing with such beasts. Though Tillinghast, who has been with the fund since its launch, is responsible for 95% of its assets, six other managers take on the remaining 5%, with each running so-called sleeves. The team has worked together for years, though the newer stewards didn’t get portfolio manager status until early 2013.
The tipoff to what makes Low-Priced so unusual is the fund’s name. To qualify for inclusion in the fund, a stock must generally trade for less than $35 per share. That price point leads the managers to smaller companies and to large firms undergoing turnarounds. Because the fund has billions in assets, it also leads to hundreds of holdings. At last word, the fund held 879 stocks, ranging from microcaps to megacaps. The average market cap of the fund’s holdings is $4.8 billion, according to Morningstar.

New Millennium (FMILX). Since John Roth took over this large-company growth fund in July 2006, he has turned in an annualized return of 8.7%, beating the S&P 500 by an average of 2.3 percentage points per year. Many consider him a rising star at Fidelity (Contrafund manager Will Danoff recently tapped Roth to help him run Advisor New Insights, which has a mandate similar to Contrafund’s but is sold exclusively through advisers).
Like Contra, New Millennium is a go-anywhere fund. Roth can troll the entire spectrum of stocks: large company or small company, growth or value, foreign or domestic. But Roth’s “sweet spot,” says Hogan, Fidelity’s stock-fund chief, is in fast-growing midsize companies. (Roth also runs Fidelity Mid Cap Stock.) Although the portfolio has its share of megasize companies—American International Group, Google and Microsoft, for example—its typical holding has an average market value of $16.6 billion, two-thirds the size of other large-growth funds. (Half of New Millennium’s assets are invested in small and midsize-company names.) One big midsize winner: financial-services firm Radian Group, which has appreciated 695% since Roth purchased it in early 2009.

Bond Funds

Intermediate Municipal Income (FLTMX). The thing about this fund is risk control. Managers Mark Sommer (at the helm since July 2006), Jamie Pagliocco and Kevin Ramundo (both joined in June 2010) keep a steady eye on risk, and they aren’t willing to take on more of it to boost returns. That has hurt the fund’s relative standing in recent years, as low-quality, high-yield tax-free bonds rallied. As a result, Intermediate Muni Income trailed its peer group, national medium-maturity municipal bond funds, in both 2011 and 2012. But the fund, which has been about one-third less volatile than its peers over the past five years, makes up for that when muni bonds turn south. Over the past 12 months, a difficult period for most bond fund categories, the Fidelity fund lost 1.6%, but that was better than the category’s average loss of 2.6%. The fund’s 30-day yield is a tax-free 2.1%.

New Markets Income (FNMIX). Few bond sectors suffered as much as emerging-markets debt during the spring-summer bond swoon, which was fueled by a fear that interest rates would rise once the Federal Reserve started tapering its monetary accommodative policies. The market’s taper tantrum proved a heavy burden for the sector, which was already reacting to concerns about slowing growth in China and suffering from declining currency values relative to the U.S. dollar. Funds that invest in emerging-markets bonds lost 12.3% from early May to early September . (Among bond fund categories, only long-term government funds fared worse, with an average loss of 15.7%.)
Under manager John Carson, New Markets Income held up better than most, losing 10.2% during the correction. Carlson viewed the selloff as a buying opportunity and added to his position in Hungarian bonds, among other debt. Although emerging-markets bond funds tend to be volatile, over the past ten years New Markets Income has delivered above-average returns with below-average risk, compared with its peers. The fund’s 30-day yield is 5.2%.
Finally, a word about two funds that are closed to new investors but open to those who currently own shares: Fidelity Growth Company (FDGRX) and Fidelity Small Cap Discovery (FSCRX). Both funds are run by steady, longtime managers—Steve Wymer and Chuck Meyer, respectively—and each would have a spot on this list were they open to new investors. (So consider yourself lucky if you already own shares—or can buy them in your 401(k)!)

 

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All contents © 2013 The Kiplinger Washington Editors

High Return Junk Stocks - What's Next (Hulbert in NYT)

December 6, 2009
Strategies
When the Performance Looks a Little Too Good
By MARK HULBERT

SANMINA-SCI, the supplier of electronics services, is loaded with debt and in each of the last eightyears has lost money. Its shares have risen more than 600 percent since the stock market rally began on March 9.

Wal-Mart Stores, the discount retailer, has lots of cash on its balance sheet, has very little debt and has consistently turned a profit. Since March 9, its shares have gained just 14 percent.
The disparate treatment meted out to these two companies by the stock market highlights an unusual and, in some ways, worrisome phenomenon: to an extent not seen in decades, shares of companies with weak balance sheets have been soaring, generally outperforming firms with stronger fundamentals.

In part, this is a consequence of the terrible pummeling given to riskier assets of all kinds during the worst months of the financial crisis. Shares of companies that were deemed to be weakest were hit the hardest. It’s only natural that they would bounce back the most at the first hint that financial disaster had been averted.

But the performance gap between the weak and the strong has rarely been as pronounced as it has been since March’s market lows. The extreme outperformance of the more speculative stocks could make them vulnerable to another market shock.
Ford Equity Research, an independent research firm based in San Diego, rates stocks’ financial quality based on a number of factors, including a company’s size, debt level, earnings history and industry stability. All told, Ford Equity follows more than 4,000 stocks. Those in the bottom fifth of its ratings — including Sanmina-SCI — produced an average stock market return of 152 percent from the beginning of March to the end of November, according to an analysis conducted for The New York Times.

The stocks in the highest quintile for quality — including Wal-Mart — produced an average gain of 66 percent over the same period, or roughly 85 percentage points less. That is the biggest disparity over the first nine months of any bull market since 1970, which is the first year for which Ford Equity has quality ratings.

Historical comparisons to bull markets prior to 1970 must rely on a proxy for financial quality, and perhaps the best available is market capitalization. Not all large-cap companies are financially healthy, of course, and not all small caps are weak. But, historically, as a group, the difference between the large- and small-cap sectors has proved to be roughly correlated with the disparity between high- and low-quality stocks.

Since the March lows, for example, according to Ford Equity, the 20 percent of stocks with smallest market capitalizations have on average outperformed the largest 20 percent by 72 percentage points — only slightly less than the 85-point disparity between the lowest- and highest-quality issues.

By contrast, in the first nine months of all bull markets since 1926, the average outperformance of the small-cap sector was just 21 percentage points, or less than one-third as much as the disparity over the last nine months, according to calculations by The Hulbert Financial Digest.

Only once since 1926 have the first nine months of a bull market produced a gap greater than this year’s. That was in the bull market that began in February 1933, in the middle of the Great Depression, when small caps outperformed large caps by an incredible 196 percentage points.

How can we explain the current extreme performance disparity? The federal government’s stimulus program is the main cause, in the view of Jeremy Grantham, the chief investment strategist at GMO, a money-management firm based in Boston. Mr. Grantham said in an interview that by temporarily reducing the danger of incurring risk, the government had effectively encouraged huge amounts of risk-taking in financial markets. “The sizable disparity of junk over quality should not have come as a big surprise,” he said, “given how massive the government’s stimulus has been.”

As an unintended consequence, Mr. Grantham said, high-quality stocks today are about as cheap as they have ever been relative to shares of firms with weaker finances.

“It’s almost a certain bet that high-quality blue chips will outperform lower-quality stocks over the longer term,” he said.

Mark Hulbert is editor of The Hulbert Financial Digest, a service of MarketWatch. E-mail: strategy@nytimes.com.

from Motley Fool - Tips on Quick Money (Speculating vs Investing)

How to Win CNBC's Million-Dollar Portfolio Challenge
http://www.fool.com/investing/small-cap/2008/05/07/how-to-win-cnbcs-million-dollar-portfolio-challeng.aspx

Bill Barker
May 7, 2008


Last year, right before its annual contest started, I wrote an article about how to win CNBC's 2007 Million-Dollar Portfolio Challenge. Now that the fantasy stock-picking game is back (following some retooling because of possible cheating by a number of Class of '07 participants), I thought I'd revisit the concept of how to win it -- and the $500,000 which goes to the winner.

Get ready to get smarter
The first thing to keep in mind at all times is that this is not a contest to identify or test investing acumen. Superior investing returns are properly measured over years, and are achieved by taking an appropriate level of risk. A two-month long contest that rewards only the very top performer each week out of a crowd of what will be hundreds of thousands of participants (each of whom may enter five separate portfolios), is not testing your abilities or intelligence as an investor. To come out on top of a very large group of competitors measured over such a short time period is simply a matter of luck.

That said, the best way to put yourself in the way of the good luck necessary to win the contest is to take the absolute greatest amount of risk that the contest allows. In other words, simply increase the randomness and volatility of your results. To do less, is to simply acknowledge that you're not in the contest to win.

It works
The 2006 contest was won by somebody who put all of his notional money into one company. This company also happened to be embroiled in a Ponzi scheme investigation at the time, and is today essentially worthless.

Now, to take a million dollars and put it into one stock that is quite likely a fraud is the epitome of recklessness and stupidity in real life. But to play that move in a game, in the hopes that a severely beaten-down stock will catch a few moments of glory off of "a dead cat bounce," is brilliance.

And so, as long as you accept that what makes sense in this game is often the polar opposite of what you should do with actual money, there's fun and, for a very few people, rewards, to be had. So here's how you should proceed:

Use all five portfolios. This one is obvious. You can't win if you don't play, and you can't maximize your chances of winning if you don't use all the portfolios available.
Maintain a super-concentrated portfolio. In this year's contest, you can no longer place all of your notional million into one stock; you can put only 25% of your portfolio into any one position in the 2008 version of the game. Playing as close as you can to the minimum of four stocks maximizes the randomness and volatility of your results.
Size matters, so go small. Small caps generally move more dramatically than large caps whether there is news or not. Unfortunately, you can't play with micro caps since the contest is limited to companies that have market caps of $500 million or more, but the closer you play to that cutoff line, the better your chances of putting a dramatic move in your portfolio.
Focus on earnings announcements. You also maximize your chances of getting a big move if you focus on stocks with earnings announcements scheduled during the dates that the contest is live. While small companies are your best bet to get volatility playing the earnings game, even Google (Nasdaq: GOOG) managed a 20% jump on the release of its most recent earnings, thanks to its beating expectations.
Look at companies trading at or near 52-week lows. That's where Google was prior to its earnings announcement. The announcement was certainly good, but the magnitude of its move was made possible by being so beaten down.
Celebrate low-priced stocks. Speaking of beaten down, stocks trading below $10 or even $5 per share are more likely to make extreme short-term moves than companies of similar market caps with higher per-share prices. That's a market anomaly, but an enduring one.
Look for shorts. Stocks with a large chunk of their shares shorted are great candidates for quick upward moves, especially when combined with the potential for a good earnings announcement. When there's a significant portion of the stock shorted and the stock starts to move up, the shorts start to cover and send the stock even higher.
Merger mania. Investing real money solely on the possibility of a merger or acquisition is loony. But for this contest, it makes sense. Microsoft (Nasdaq: MSFT) may or may not really have walked away from Yahoo! (Nasdaq: YHOO), but in the absence of a better idea, or until a better idea comes along, it makes some sense to play Yahoo! for a quick pop on the hint or rumor that merger talks could reawaken.
Biotechs, baby. Biotech stocks frequently populate both the top performers of the day and the top drops of the day as major news is released about a drug trial. As for which biotechs will have trial results forthcoming, I pinged our biotech guru Charly Travers. Myriad Genetics (Nasdaq: MYGN), he told me, "is releasing phase 3 data on its drug Flurizan for the treatment of Alzheimer's disease in June." Now, Charly -- like most of the investment community -- doesn't expect the results to be positive. But since expectations are so low, we could see a pretty big pop if the announcement contains any good news at all.
Simply have fun. Having spoken with the fine people at CNBC about their contest, they fully recognize that they're offering a fun game -- not a real exercise of their contestants' investing acumen. Remember that and enjoy the opportunity to trade stocks in a way that you would never attempt in real life.
Some additional ideas
Combining some of these criteria, here are a few small caps with low share prices, high short ratios, and upcoming earnings:

Company
Market Cap
Stock Price
Shares Short as a Percentage of Float
Date of Earnings

Blockbuster (NYSE: BBI)
$546mm
$2.78
43.8%
May 15, 2008

Circuit City
$860mm
$5.10
17.6%
June 16, 2008

FuelCell Energy (Nasdaq: FCEL)
$602mm
$8.87
17.5%
June 2, 2008

TiVo (Nasdaq: TIVO)
$842mm
$8.39
18.1%
May 26, 2008

Data from Yahoo! Finance and Thomson Financial.
Furthermore, Blockbuster and Circuit City offer the added volatility of a bizarre merger contest that involves angry activist shareholders.

Back to reality
It behooves me to point out, once again, that I don't consider employing most of these tactics a worthwhile way to invest. Yes, small caps provide better returns than large caps over the long term, and we explore how to actually invest in them in a real-world sense in Motley Fool Hidden Gems. In fact, you can see our top small-cap picks for new real money now, by clicking here to join the service free for 30 days.

But life isn't all about real-world achievable returns, nice as they are. Sometimes, it's worth seeing whether you can turn $1,000,000 into $3,000,000 in a matter of weeks, especially when there's nothing to lose by trying.

Bill Barker does not own any stocks mentioned in this article. Microsoft is a Motley Fool Inside Value recommendation. Myriad Genetics is a Rule Breakers pick. The Fool has a million-dollar disclosure policy.