How to Win Beat the Street

Picking stocks for a weekly contest is an ugly business. As Jim Cramer has said before, you might need as much as 20%-30% gains or more to win a stock-picking contest like TheStreet.com's Beat the Street.

So forget about otherwise quality companies like Johnson & Johnson JNJ and Microsoft MSFT or even Google GOOG and Baidu BIDU.

Focus on ugly. We're going to the gutter here and turning over some rocks to see what we can come up with. Here are some basic rules to live by:

• Don't diversify. Diversification is fine if you're my grandma and you need steady income for an IRA. But you aren't. You're a cold-hearted killer trying to win a contest against thousands of other killers. Five stocks. All with the potential to skyrocket. That's it. Don't go crazy and don't fall in love with any one stock.
• Be prepared to lose 50% or more. The only way to gain 100% is to risk losing 100%. Those are the facts. We're all about buying volatility here, and the most volatile stocks are the ones that are careening down.
• Choose wisely. Keep in mind you get one shot on Tuesday night to change one stock in your portfolio. Take advantage.

Every week, I post a Rocket Stocks portfolio portfolio and column featuring stocks I believe have the potential to move fast to the upside. Keep an eye on these.

In addition, my colleague Patrick Schultz writes TheStreet.com Power Stock Rankings each Tuesday, where he makes the buy, sell or hold call on the 10 most-searched stocks on TheStreet.com. This column can help you find the right stock to use for your once-a-week portfolio adjustment.

Then, you should check back daily on these portfolios to find suitable candidates:

• Always check the Biggest % Losers from the day before. They can snap back hard:

  When you check this list on Stockpickr, you can see which stocks are owned by the quality hedge funds and mutual funds. Pay attention to those. They will be buying at the lower prices so you should be also.

• Ditto for the 52-Week Lows List. You must check the above two lists every day if you hope to find volatile stocks.
• Stocks Rising on Unusual Volume. These are stocks of potential breakouts.
• Stockpickr's System Trades of the Day: These are trades triggering that day in various backtested trading systems we've developed.
• Stocks with unusual options activity the day before. Perhaps someone knows something?
• Latest Activist Situations: These are beaten-down stocks in which hedge funds are accumulating shares and demanding change. Believe me, these hedge funds piggyback each other. And once they start rocking the boat, things happen quickly. This should be on the must-view list.
• Warren Buffett's portfolio. It can't be bad to mimic the master. Buy any stocks that have fallen from grace that he owns because snapback potential exists.

And get some ideas on the Beat The Street forum: ask questions, post ideas and share thoughts on stocks with the rest of the community.

Again, don't be embarrassed to take some major risk here. You need to find big winners, which today would have been a stock like JA Solar JASO. And remember, although great companies, safe picks like Procter & Gamble PG and Wal-Mart WMT, likely won't win you this contest.

Please post to Stockpickr's Beat The Street forum if you have any questions, ideas or want to share thoughts on stocks with the rest of the community. Good luck.