On October 9, 2008, Marketman purchased a hypothetical portfolio of 10 common stocks for a total of US$200,000. It was an attempt to essentially “play a game” with the very real life lesson of illustrating how the stock markets can work, with the Teen as my main student, and with several readers expressing an interest in tracking the progress of this hypothetical portfolio. If you will recall, MM selected 5 stocks, Apple, Coke, Goldman Sachs, Boeing and CVS. While the Teen picked Amazon and Hershey and Mrs. MM rounded out their 5 stocks with General Electric, PLDT and Microsoft.
On October 16, 2008 just one week later, the stocks zoomed up 6.9%, and have since been on a relatively volatile rollercoaster ride up by as much as +13%, and down by as much as -18% in the six months since. I wish to make it clear that I AM NOT RECOMMENDING that you invest in stocks, this example and its associated posts are meant to be illustrative, and they DO NOT mean that anyone else should follow suit. Particularly if they are not adequately informed about the risks of investing in common stocks.
By Nov. 9 or so, the portfolio was back to its original amount, roughly USD200,000. By early December, it was down 5%, then by early February 2009 it was up 2%. Early March saw it swing back down 5% and it’s pretty much been a nice upward trajectory since, with the total portfolio on April 10, 2009, almost exactly 6 months after we started this adventure, up 11%! The USD200,000 original amount invested is now up to USD221,043. There were another USD1,000 or so in hypothetical dividends received during the period, which I used to pay the hypothetical brokers fees. So net net, if I sold all of the stocks on April 10, I would have made a “profit” of USD21,000+ or roughly 11%. Not bad, if you ask me. That works out to an annualized return of 22% if the performance continues… or if I withdrew it now and stuck it in a safe government security like a Treasury Note, I might make another 2-3% for the next six months, for a total annualized yield of roughly 14-15%. Again, not bad at all in what was supposed to be some of the WORST FINANCIAL TIMES since the Great Depression, according to the Financial press. So while many folks assume things are going rather badly, I can assure you that there are quite a few folks out there who have made some money on stocks in recent months; or at least have clawed back around half of their shocking losses last September/October…
In the six months since the hypothetical portfolio was picked, five stocks rose in value: Coke +46%, Amazon +42% (The Teen!), Goldman Sachs +38%, Apple +36%, Hershey +5% (The Teen!) and the five remaining stocks stayed almost flat or dropped slightly, GE dropping the greatest amount -40%. Five stocks did well or VERY well, four stocks were down ever so slightly, and 1 stock went down dramatically. Net result, 11% up. The Teen did very well picking Amazon, the second highest return stock. And her Hershey’s didn’t do so badly either. Mrs. MM took a bet on General Electric, but it has been hammered by the recession, though I believe it will come back in the next year or so. From my own perspective, this really cements the notion of going with your instincts if you have shown a history of picking things well in the past… Our top three picks of Coke, Apple and Goldman Sachs averaged gains of 38-39% in the six month period. Shucks… if only MM put his money where his blog posts were… :)
So for all of you doubting Thomases out there, and I did receive more than a couple of emails after my initial post on this subject matter, mostly from folks who thought it was inappropriate to refer to this as a “game” when that is in fact how this is often taught in schools, I will tell you that I did put some money where my blog post was. I won’t tell you which one of the top 3 stocks I actually purchased (four times over the past 6 months), and I will admit I invested FAR, FAR less than the hypothetical portfolio, but my actual returns that are locked in (sold and took profit on), are closer to 20% for the six month period under review. BUT DON’T FORGET THAT STOCKS can be RISKY. AND THEY COULD STILL GO CRASHING DOWNWARD. But let’s continue this hypothetical portfolio for another six months and see where we are then…
Note: For simplicity sake, I have kept the portfolio exactly as I had purchased it. Didn’t sell some stocks and buy more of others. Didn’t go in and out of the market. Didn’t do any fancy things at all. Just bought and held.