Who doesn’t love a throwdown? Some friendly competition?
Especially with real money on the line?
It’s time to Play the Ultimate Match: let’s see what happens when I face-off against 14 finance bloggers in an Investing Throwdown!
“The what?! Throwdown?!”
“Are you drunk?”
Yeah, yeah, I know. I wrote that intro with my best WWE sports announcer voice running through my head. Grrr!
Okay, fine. Competition ain’t my style.
But I do love a challenge. So when a handful of finance bloggers challenged me to beat their investments in a quest for the ultimate investing triumph, I thought:
Here’s how this breaks down:
#1: On January 1, fourteen finance bloggers – including yours truly – invested $1,000 into the stock market.
#2: We picked any investments – stocks, index funds, ETFs, bonds.
#3: We can place trades as much (or as little) as we want throughout the year.
#4: We track our progress for a year.
#5: We crown a victor. Victory!!
Let me take a moment to say: I realize we’re making investing sound like a sport. And it’s not a sport. It’s a sober, analytical … zzzz.
Here’s the deal:
I think investing is awesome. Maybe you do, too.
But there are millions of people who associate “investing” with stodgy and stuffy and boring.
So I want to get people pumped. I want you to leap off your couch and yell, “Bring it on!!”
And when 2014 is over, I want you to keep investing …
…. for the rest of your life.
You MUST invest to grow wealth. Plain and simple. So I’m trying to make investing awesome.
Now: It’s time for some friendly competition. Let’s roll!
Can A Blindfolded Monkey Beat the Financial Experts?
In 1973, Princeton professor Burton Malkiel wrote a must-read book called A Random Walk Down Wall Street. It became a mega-bestseller and is now regarded as an investing classic.
“A blindfolded monkey throwing darts at a newspaper’s financial pages could beat most experts,” Malkiel famously asserted in the book. (That line is classic pop-wisdom among the Investing Geek crowd.)
I want to test if that’s true. But I can’t find an actual monkey.
So I’m going to imitate a monkey, instead. (It isn’t a far stretch.)
Here’s my 3-step investing strategy:
Step 1: Blindfold myself.
Step 2: Throw darts at a list of stocks.
Step 3: Buy stocks.
How many stocks? Ideally, I’d love to sink $100 into 10 stocks. I don’t want to sink the entire $1,000 into just one company. #Risky
The problem? Fees. Most companies charge $4 – $10 each time you place a trade.
That means I can’t buy 10 different types of stocks. I’d lose $200 in transaction fees — $100 when I buy and $100 when I sell.
That’s a 20 percent loss – right off the bat. Ouch!
But I did some digging, and I discovered a company called Loyal3, which lets me buy-and-sell stocks with zero commissions or fees.
It’s totally free.
(They also have this cool program where you can invest in IPOs – also without fees – with a minimum investment of $100. Throw them your email address and they’ll ping you the next time they have a mouthwatering IPO.)
So … time to pick the players. Which companies will compete on my team? Check out this one-minute video:
(If you can’t see the video, here’s a direct link to it on YouTube.)
And the winners are ….
- Berkshire Hathaway
- Discovery Communications
- VF Corporation
Here’s what I did.
On Christmas Day, I moved $1,000 into my Loyal3 account. On New Year’s Day, I bought $100 worth of each of these companies. Let the games begin!
But wait!! I need to compare this to some alternative.
So I’ve created 3 other options:
#1: I’m going to “dollar-cost average” into one of the companies on my list of 10.
I randomly picked Berkshire Hathaway, the company managed by legendary investor Warren Buffet. I’ll automatically invest $83.33 per month ($1,000 per year) into the company.
For those of you who aren’t familiar with this concept: “Dollar-cost averaging” is an automatic way to buy low, sell high. (Or at least, “buy low, don’t-buy high.”)
How? It’s simple. When stock prices are high, $83 buys fewer shares. When stock prices are low, $83 affords more shares.
Month 1 – Stock Price $83 — $83 Buys 1 Share
Month 2 – Stock Price $60 — $83 Buys 1.38 Shares
Month 3 – Stock Price $110 — $83 Buys 0.75 Shares
In the past, normal people couldn’t dollar-cost average into company stocks. The transaction fees were too high. People dollar-cost averaged into index funds or ETFs, but they couldn’t slowly dip into stocks.
But “free” is a game-changer.
Now that we can transact for free through Loyal3, I’m going to dollar-cost average into one company’s stock …. and see what happens.
Will it beat Berkshire Hathaway’s overall performance (from Jan 1 – Dec 31)?
Will it lag?
We’ll find out.
#2: As a “safety benchmark,” I stuck another $2,000 into an EverBank Money Market account.
Everbank offers one of the highest interest rates on the market — 1.10% for the first 6 months, and 0.86% APR throughout the year – so this investment will be the benchmark comparison between “playing it safe” in a high-interest money market account.
They require $1,500 to open the account, so — to simplify things — I rounded up to $2,000, and I’ll divide my gains by half when I’m reporting the results on this blog.
#3: Finally, we’ll watch how the overall market performs throughout this year. We’ll compare our stock performance to the general economy … and see who wins.
Let me end with a few disclaimers:
#1: There ain’t nothin’ scientific about this. It’s an experiment. A quest for victory. A game (of thrones.) It’s not intended to “prove” anything. Don’t draw any conclusions from the results. This is just for laughs.
#2: Stick with index funds for the vast majority of your portfolio. Invest in stocks with your “fun money” – that extra 10 percent you’ll use to take some risks.
#3: Don’t throw darts, while blindfolded, when your boyfriend is standing in the line-of-fire. #Oops
Full Disclosure: Some of the links in the post above are “affiliate links.” This means if you click on the link and purchase the item, I will receive an affiliate commission. It won’t cost you anything extra. I only recommend products or services I use personally and believe will benefit my readers.