Amateur leads the market by 28%

Strategy Lab is MSN Money's stock-picking challenge. Six top traders run mock $100,000 portfolios for six months, documenting every move to show how they make money.

Who says an everyday investor can't survive while Wall Street's biggest names are falling left and right?

Amateur Jim Van Meerten has surged into the lead after the first two months of our Strategy Lab stock-picking challenge, with a 4.6% gain. Heck, with the market down 23.5% in the same period, he's jumped ahead of most of the investing world.

He seems to have been helped by a general disdain for Wall Street and the idea that the feds are coming to our rescue, as expressed in journals like "Is Larry the Cable Guy running D.C.?" If there's any doubt the investing public shares that view, consider a recent e-mail from one reader that reads: "Please, let's not insult Larry the Cable Guy."

But for all the folksy charm of Van Meerten's journals, his real key has been a fairly sophisticated system. An accountant and auditor with a law degree and lots of advanced studies, he's spent years developing a strategy that tracks both up and down momentum.

At the moment, the short side is the key. He was way up earlier in this round on NPS Pharmaceuticals (NPSP, news, msgs), which has fallen to earth lately, and he's still up nearly 60% on Ciena (CIEN, news, msgs).

But his portfolio's strength right now is built on a series of shorts, particularly those traded into on Sept. 19. Most were exchange-traded funds tracking foreign indexes -- Templeton Russia & East Europe Fund (TRF, news, msgs), iShares MSCI Brazil (EWZ, news, msgs), Clough Global Equity Fund (GLQ, news, msgs) and iShares MSCI Austria (EWO, news, msgs). Another big winner: Votorantim Celulose (VCP, news, msgs). The average gain on these five positions: 39%.

At the time, he was already invested in UltraShort MSCI Emerging Markets ProShares (EEV, news, msgs), now a 68% gainer, and short on iShare MSCI Italy (EWI, news, msgs), now a 28% winner for him.

A second set of shorts, contained in his Cable Guy journal of Oct. 3, is also up.

Earlier in this round, of course, he'd been a little whipped by some shorts. If not for some early losses, in fact, he'd be a lot better than even; his average gain on his current portfolio positions is more than 16%.

But he stuck to his strategy, and that has kept him ahead in a market that's now down by 22% since we started our round on Aug. 4.

This is, by the way, the second round in which an amateur who surfaced through a reader competition has helped lead the way here in Strategy Lab. Skeptical Capitalist Vad Yazvinski played the last round as our Amateur and, after a stellar performance in our first Strategy Lab Open reader competition, came out on top.

Neither Amateur, of course, was a neophyte. They just didn't manage money in the market for a living. Their success could be a sign that the market really is topsy-turvy or -- and we prefer this explanation -- that we have very wise readers.

Top pro rolls on short side, too

Van Meerten had been running neck-and-neck with Disciplined Investor Andrew Horowitz, who this week noted that this is the toughest market he's ever seen. "Even 2000-2002 seemed to make more sense than this; there was a clear demarcation that saw a bubble quickly burst, rather than today, when we have a slow bleed that eventually pops," he writes. "Though I have tried, recently it has been very difficult for me to find any investments I like either for a long or short entry. The markets are taking apart portfolios with a vengeance, and it is clear that a high level of cash with a strategy that is finely disciplined is the only way to survive."

Looking to pick up some cheap plays, he added six long positions with that journal, but he's already stopped out of a couple of those as they have taken further losses.

He, too, is staying hugely ahead of the market by betting on the short side. He's up 48% on UltraShort S&P 500 ProShares (SDS, news, msgs), 26% on a short of BlackRock New York Municipal Income Trust (BNY, news, msgs) and 32% on a short of Pimco New York Municipal Income Fund (PNI, news, msgs).

He's also short Lifeway Foods (LWAY, news, msgs) for an 18% gain.

The other portfolios

Beyond those two, the Lab portfolios are a fairly good representation of what's happening on the long side of the market: a near-total washout.

You might think a $700 billion rescue and a global rate cut would inspire some buying, but the S&P 500 has fallen 14% so far this week. (What does Wall Street want, taxpayer blood?)

But All-Star Team trader Ken Kam made a timely move yesterday at the open, buying into Ultrashort Russell 2000 ProShares (TWM, news, msgs) and Ultrashort Financials ProShares (SKF, news, msgs). In yesterday's blowout, they gained 17.5% and 20%, respectively. (His latest journal explains why today is a critical day in the mortgage mess.)

Despite a rough day for his long positions, that brought his portfolio up by 5% -- putting his 18% or so ahead of the market.

The most striking plunge in recent weeks is that of Guru Investor John Reese, who's gone from a share of the lead to a 25% loss in the past couple of weeks. That makes his latest journal, "Biggest wins come when times are tough," particularly timely. He rebalances his portfolio and explains why now is the time to buy good stocks cheap -- and not try to call the bottom.

News Hound Howard Gold sums up the market pretty well with this start for his latest journal: "The horror! The horror!" That, of course, is from the movie "Apocalypse Now" and the Joseph Conrad novel "The Heart of Darkness." Either title could fit Wall Street right now.

Gold added to his best position this week, PowerShares DB US Dollar Index Bullish Fund (UUP, news, msgs). Dollars are one of the few things rising over the past couple of weeks. Perhaps they're more comfortable than gold bars when they're tucked inside your mattress.

Yazvinski, our Skeptical Capitalist, also took a whipping this week, as he rolled much of his portfolio into preferred shares of banks with "Why even good stocks are falling." Fittingly, given the title, all fell into the red. Almost everything did this week.

But in his journal today, he explains the rationale behind the move: the potential for huge gains on what he sees as vastly undervalued equities.

Some earlier miscues left Yazvinski trying to climb back into the game, which means taking some risks. And with so much heading down, climbing up is a very hard thing to do now.

Meet the strategists at The Money Show

We'll be gathering a panel of Strategy Lab players for The Money Show Washington D.C., on Nov. 6-8, and we hope you can join us for the debate. Our players will be among the more than 50 investing experts on hand to help you gear up for changes in the political landscape as we move toward a new market year.

Admission is free for MSN Money readers. To register, call 1-800-970-4355 and mention priority code 010333, or visit The Money Show Web site to register for free today!

By Ron Prichard, MSN Money