3 tips for winning the MSN Stock Challenge

• No new trades.

Strategy Lab is MSN Money's stock-picking challenge. To learn more about the game -- and the contenders -- click here.

If I were to tell you that it's possible to make $15,000 by picking the right stocks, with absolutely no risk of losing even a dime, would you be interested? The MSN Stock Challenge, based on the CAPS stock-rating system, offers exactly that opportunity.

I'm a big believer in CAPS, and if you haven't already checked it out, I encourage you to do so. Spending a little time with CAPS, in which thousands of everyday investors rank stocks, is almost guaranteed to help make you a better investor -- even if you don't win a prize.

But yeah, I know what you're thinking: "Better investor, blah, blah. I want that 15 grand!"

• Fantasy stock challenge: Join CAPS, rate stocks, win great prizes

I may just be able to help you. I've been playing CAPS for a while now, and I've long been one of the top-ranked players. Here are a few tips to help you improve your CAPS score and increase your chances of walking away $15,000 richer.

Tip 1: Make lots of picks

Most stock-picking competitions, including Strategy Lab, are portfolio simulations. Contestants are given a fictitious sum of cash and invest that cash over time in the stock market. The player with the most money in cash and stocks at the end wins.

CAPS, and the stock challenge, are different.

In CAPS, one picks a stock to either outperform or underperform the S&P 500 Index ($INX).

If I pick a stock to outperform and the stock goes up by 7% while the S&P goes up by 5%, I made the right call and get two points for the pick. That's the amount the stock outperformed in percentage terms. Underperform calls work the same way, just in reverse.

Why does it help to make lots of picks? Well, CAPS scores are additive. If I make two picks that go up 7% while the S&P goes up 5%, I get two points for each pick, for a total of four points. This is different from a portfolio. If I split my money between two stocks in Strategy Lab, for example, and both go up 7%, I'm still up just 7%. If the market goes up 5%, it's a 2-percentage-point advantage. (For more on the contest scoring system, click here.)

Tip 2: Accuracy matters

In a portfolio game, accuracy doesn't matter. In Strategy Lab, if I pick one runaway multibagger along with a bunch of yawners, the rocket has the potential of lifting my entire portfolio to the top of the heap. Not so much with CAPS.

In CAPS, one's overall rating is based two-thirds on score and one-thirds on accuracy. Accuracy, simply defined, is whether or not the pick was correct -- did the stock outperform or underperform the market. (Score tells us by how much.) So you can see why the one-rocket-stock example wouldn't do as well in CAPS. You might be thinking, "Well, if I want high accuracy, it's easier to be 75% accurate over 10 picks than it is to be 75% right over 100 picks, so why not make fewer picks?"

Continued: Don't be shy with the thumbs-down

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