Phantasmix Stock Blog

There’s been some interest in my “lazy portfolio” recently. Canadian Business magazine probably ran their annual article on the “Couch Potato” investing. Not sure if that’s the cause or markets are making people turn to passive “safe” strategies, but I’m getting a lot of searches for it.

Here are the results from investing $10,000 in May 2007 (what turned out to be the top of the March-May rally), including the dividends:

In retrospect, I picked just about the worst time to start the portfolio. However, it’s also the perfect illustration of an average investor who buys the top.

The allocation was off, as well, but similar to what magazine articles recommended at the time.

Very common advice for the long-term investors is to not time the market, instead invest monthly equal amounts and it will average out to something nice in the end. Had you continued to invest monthly as they say you should, you’d be throwing the money into the market and watching it go down, monthly.

A good read for those contemplating investing for the decades.

By investing for the long-term you very well may find yourself in a position today’s seniors are, not through the fault of your own. No one person controls the macro environment and throwing all your savings into the stock market that is at other people’s mercy is foolish.

Long-term horizon shouldn’t be over several years, 2, 3 or 5 years is acceptable. No stock goes up in a straight line, so taking profits (selling) in order to re-buy later for less is prudent.

Investing is by no means a sure-fire way to make money. Educating yourself on how to time your stock purchases is the only way to go, otherwise you will always be buying the top. That’s just how it works.

Please don’t use Warren Buffett as your example. Just don’t. I can – and probably will – write a separate post on why it’s wrong to try and emulate his investing style if you don’t have a billion dollars and lots of friends in the government.

Ok, so the takeaway is this — timing the market is a must, for short- or long-term investing.

This is the year end result of my hypothetical portfolio I started on May 1: -1.3% (including dividends).

It’s not especially spectacular or particularly bad, but it is much worse than the Canadian, American and EAFE markets did. In addition to the negative performance, had I actually bought these ETF’s, I’d also be hit with a tax bill for the distributions. Here’s more information on this topic.

Overall I’m unhappy with this passive portfolio. If not for these distributions I would give this setup a chance and track it for at least a couple of years longer. However this complete lack of control over the buys and sells of holdings within the ETF – and tax implications of this – makes me want to continue stock picking on my own.

So this is the end of the ETF Portfolio v. 1. I will work out a new passive hypothetical portfolio. This time I’ll make it a benchmark against which I’ll track my own results, as opposed to making random picks across the regions.

Click to enlarge the chart

Components

CDN Composite (XIC) – 45%
CDN S&P 500 (XSP) – 25%
CDN MSCI EAFE (XIN) – 30%

Initial Investment

Approximately $10,000 one-time.

Performance for period ending November 30, 2007: -0.1% (including dividends).

All previous gains have been wiped again, however -0.1% is pretty much even and a heck of a lot better than my Juniors portfolio performance. Performance ending Dec 4 (today) stands at -1.2% however the purpose of this portfolio is not to look at daily performance. I’ll stick with the “lazy” approach with only monthly updates.

Click to enlarge the chart

Components

CDN Composite (XIC) – 45%
CDN S&P 500 (XSP) – 25%
CDN MSCI EAFE (XIN) – 30%

Initial Investment

Approximately $10,000 one-time.

Performance for period ending October 31, 2007: +5.4% (including dividends).

Click to enlarge the chart

Components

CDN Composite (XIC) – 45%
CDN S&P 500 (XSP) – 25%
CDN MSCI EAFE (XIN) – 30%

Initial Investment

Approximately $10,000 one-time.

I’m skipping August since it’s not that interesting on its own, and here’s the Lazy Porfolio performance May to September 30, 2007.

Last update was up to end of July. Since then all the losses have been completely erased, and overall stands at +2.4%.

My penny stock investments are very disappointing, they didn’t recover along with the rest of the market. I stopped tracking them daily; vacation sure helped with the obsession.

Components

CDN Composite (XIC) – 45%
CDN S&P 500 (XSP) – 25%
CDN MSCI EAFE (XIN) – 30%

Initial Investment

Approximately $10,000 one-time.