21 Apr2009

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.

 

COMMENTS:

  1. tarcs says:

    Marketman – I think you mean October 9 and 16, 2008. I stopped checking the value of my portfolio some time ago, I’ll go check again now. Good post, as usual. Thanks

    Apr 21, 2009 | 3:46 pm

     
  2. Marketman says:

    tarcs, thanks, I have edited post.

    Apr 21, 2009 | 3:47 pm

     
  3. Doc Harry says:

    Wow… I’m starting to wonder if I should pull out my managed UITF and just go in on some stocks on my own…

    Apr 21, 2009 | 5:04 pm

     
  4. passive says:

    i stopped looking a loooong time ago..last time i checked my portfolio is down by almost 40% of my original investment…who knows, maybe by the time i will retire, i may be able to cash in and buy some adult diapers..hayy

    Apr 21, 2009 | 5:24 pm

     
  5. acmr says:

    My 401K is down by more than 50%. I am not a savvy investor at all, even if I have an MBA in finance. No time to watch the market eh. Kakahiya! Sigh. Buti na lang I have time to make it up. I am not retiring in the next 15 years (if only I could!). The only thing I can do is really pick better funds siguro.

    I just saw a special on 20-20 last weekend and there were folks in their late 50’s and early 60’s who were planning to retire in the next 5 years, but are now back in the work force and cannot see when they will actually be able to retire. It was tough to watch and made me grateful that I still have time.

    By the time I retire, there will probably be no social security money left in the U.S. Sometimes I wonder what is the better — to live in the U.S. where you have convenience, medicare (for seniors) and other comforts, or retire modestly in the Philippines, just manage to live with the things that I grew up with — unreliable public service, traffic, pollution, etc. Haay, things to think about.

    Apr 21, 2009 | 10:17 pm

     
  6. eej says:

    If you have extra cash, this is the best time to buy stocks for dirt cheap. Invest now as there are clear indications that an upswing (albeit in a slower pace)is in the horizon.

    I guess, we’re all in the same boat with our 401Ks… My paper money is gone with the wind. I have to remind/repeat to myself the mantra “Think long term… think long term”… Haay, naku indeed!

    Apr 22, 2009 | 12:44 am

     
  7. Anbu says:

    If I picked stocks randomly at that time it would’ve gone up too. The market’s essentially been up 23% since the beginning of the year. There’s no way to go but up. And there are stocks out there whose prices do not reflect their historical worth and are truly a bargain based on fundamentals. So really, today’s market is one people should be getting into. There’s bound to be much volatility and a few bear rallies here and there, but if the mindset of an investor is a long term one, then it’s an ideal time to buy in. Great time if you’ve got time on your side. Absolutely sucks though for those who wanted to cash in on their investments. Man, I too wish I had that 200k to invest.

    Apr 23, 2009 | 8:50 am

     
  8. cardinalfire says:

    I was interested in learning how the stock market works though I don’t have any financial background. But I realized that it’s best to invest when you have extra cash to spare. It looks like a gamble to me. Once you put your money into it, consider it gone for now.

    Apr 24, 2009 | 5:25 am

     
  9. Ted says:

    Investing is NOT just for the moneyed. If you have the financial ability to save, then do that for now and once you have the sufficient amount saved up, shift it to an nvestment portfolio, just be aware that when investing the risk of losing your money is greater than when saving it, but the rewards are higher in the long term.

    When investing, any day is the right day to invest, you just need to diversify. No one can accurately time the market. But history says that the longer you stay in the market the rewards would be higher, just let it ride.

    Apr 25, 2009 | 2:25 am

     
 

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