$10,000 Play Portfolio Update – December 2012

As part of my Beat the Market Experiment, I started three portfolios on November 1st, 2012:

  1. $10,000 “Good Boy” Passive ETF Benchmark Portfolio that would serve as both a performance benchmark and an example portfolio that would be easy to build and maintain for DIY investors.
  2. $10,000 “Bad Boy” Beat-the-Benchmark Portfolio that would simply represent the attempts of an “average guy” who is not a financial professional and gets his news from mainstream sources to get the best overall returns possible.
  3. $10,000 Consumer Loan Portfolio – Split evenly between LendingClub and Prosper, this portfolio of peer-to-peer loans will have a target return of 8-10% net with the goal of beating the Benchmark portfolio over the long run.

This is the monthly update for $10,000 Play Portfolio as of December 1, 2012. I have to admit upfront that I haven’t devoted much time into this portfolio. I am no wannabe-Warren Buffett, as he would read the financial statements and 10-Ks of any company before buying in. Still, I am serious about trying to beat the market, as this is my own hard-earned money I’m using. I am using a TradeKing account for this portfolio, and here is a screenshot as of close 11/30:


(click to enlarge)

Here’s a pie chart of my holdings:

Details below:

Apple, Inc. (AAPL) – $5,267.52
I’ve held shares of Apple on and off for years in my fun money accounts, and I’ve left a lot of money on the table. I bought at $130, sold at $200. Bought at $300, sold at $500. Now that I have this public play portfolio, I bought 4 shares of Apple on 11/2 @ $578.55 which was about 25% of my total amount. When share prices dropped another 8%, I bought 5 more shares @ 531.71 on 11/15. As of close on 11/30 the share price was $585.28.

I don’t think Apple is a perfect company by any means, but I do think they have upside in personal computers and something of a moat in mobile devices (and one day there will be no difference). The price is also fair in my opinion. My initial timeframe for holding this stock is only a year or so.

WisdomTree Emerging Markets Equity Income (DEM) – $2,503.22
The WisdomTree Emerging Markets Equity Income Fund is a passively-indexed ETF that holds stocks from countries with emerging markets including Taiwan, China, Russia, Brazil, and South Africa. However, instead of being weighted by market-capitalization like most index funds, this ETF weights based on the size of the dividend yield of the stocks.

The rationale here is that companies in these countries have less-transparent accounting procedures, and by only purchasing companies that have both the ability (real profits…) and the desire to pay out cash dividends it is easier to avoid the shady companies. Also, dividends are an indicator that shareholder and management interests are aligned. Although DEM charges an expense ratio of 0.63% vs. VWO at 0.20%, I’m interested to see if this methodology works out. Here are some comments from a Kiplinger article about DEM:

I think part of the fund’s success stems from the nature of dividends — and part has to do with luck. [...] Managers in this category are bedeviled by lack of transparency in corporate reporting, high trading costs and corruption. [...] More important, dividends — unlike quarterly earnings reports — don’t lie. When corporate managers in emerging markets pay dividends, they may also be saying something about their own ethics. Or, it could be that their families own a ton of the stock. Either way, the executives are on the same side as the shareholders.

Look closely at the holdings of the WisdomTree ETF and you’ll find significant contrasts with the MSCI index. The ETF has 21% of its assets in Brazil (compared with 13% in the index), 22% in Taiwan (compared with 11%), 10% in South Africa (8%) and 9% in Malaysia (4%). On the other side of the coin, it has just 3% in China (19% in the MSCI index), 2% in Russia (7%) and nothing in India (6%).

Bought 47 shares of DEM @ $53.32 on 11/2. As of close 11/30, DEM was at $53.26. I have a longer 5+ year timeframe on this holding.

Cash – 25%
There weren’t any other buying opportunities that presented themselves, so the rest stayed in cash.

Stocks: $7,770.74
Cash: $2532.19
Total portfolio value as of 11/30/12: $10,302.39

Comments

  1. I’m not a pro, but this still seems pretty conservative for being a “bad boy” portfolio. The beta for AAPL is below 1. I would expect a “beat the market” portfolio to be riskier than that. And when a lot of analysts believe that (currently) AAPL actually IS the market (it’s one of the biggest pieces of the S&P 500), then what advantage do you gain over your “good boy” portfolio?

  2. Beta only captures the systematic (or market) risk in an investment. Apple (or any company) has plenty of company-specific risk on top of that market risk. Think about if they were to offer a special dividend and distribute some of their hoard of cash. The stock would bottle-rocket. Or if news came out that there were problems in their supply chain. The stock would get hit. Both of those examples could drive the stock in a different direction and magnitude than the overall market. Holding one stock entails a huge amount of risk.

  3. aapl and dem as risky, bad boy plays.. ooooh im scared! so risky!!

  4. Hey, anyone who beats the market by 1% annually after costs over a 10+ year horizon is a rock star as far as the statistics show. (2% if you want to run a 1% expense ratio fund) If you prove you can do that, I’m sure someone will give you a job at a hedge fund. It ain’t easy.

  5. @Scott – Beta is just direction, not magnitude… check this out:

    http://performance.morningstar.....ture=en-US

    $10,000 invested in the S&P 500 at the beginning of 2007 would be under $25,000 including dividends $10,000 invested in Apple would be $70,000. I think that’s quite a difference.

  6. These portfolios hold real money correct? That isn’t playing as far as I’m concerned. But, good luck with your experiments.

  7. Some stocks to look at all of which I own(list is not inclusive). Im not going to brag I beat the market every year yada yada yada, but look at these. All of these will be higher 1 year from now unless the market crashes, mark this post.:)

    AIG
    AIG-wt
    LVS
    MPEL
    YUM
    MCD

  8. AAPL is down 25% in the last 90 days…. Guess it’s riskier than some would have thought.

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