«

»

Dec 14 2010

avatar

Print this Post

The Biggest Loser – Financial Update





Here’s a challenge for you and your closest friends.

I’d compile 10 cars requiring tune-ups.  Then you and your friends would work on them to try making them run as badly as possible.  Yeah, you read that correctly.  I’d want you to see how badly you could mess the engines up.

In the second corner, a series of hot shot mechanics would have 10 cars.  They would work as hard as they could to ensure that their 10 cars ended up running as dreamily as possible.

Which cars would run better—the mechanics’ cars or yours?

No, I’m not under the influence of a magical narcotic.  I’m just setting you up for something bizarre.

In April of this year, I started a challenge similar to this on my blog.  But it related to finance.

I asked readers to create a portfolio of the worst stocks they could imagine:  stocks that were destined to find themselves swirling around the porcelain edges of refuse before ceremoniously joining the sewer (or the recycled water drinking treatment plant we have here in Singapore)

Of course, one person’s pariah may be another person’s coveted crown jewel and you may not agree with all the selections they made, but they aren’t professionals.  And they were doing their best to choose the ugliest, smelliest, foulest stocks they could find.

Then I was going to track the portfolio of the 23 stocks they compiled.




What was I going to compare it to?  The metaphorical mechanics, of course.

I also asked readers to find the greatest actively managed funds they could find.  I wanted ten of them.  Then I suggested that I’d track their performances over time.

I had a theory.  After 10 years (yeah, that’s a long time to read a blog, but I’m in this for the long haul) I guessed that the lousy stocks—without being traded—would keep pace with the aggregate returns of the top, selected mutual funds.  In the money management world, that’s entirely possible.  In the real world, however, there’s no way that you and your friends could expect to consciously destroy a car’s engine and expect it to run better than a trained mechanic would, if they were actually trying to tune up the car.

Bill Miller Beats the S&P 500 For 15 Straight Years—But he’s wrecking his engine

I’m actually a huge fan of Bill Miller.  But his fund was chosen as one of the “top 10 to track”.  And since April, his fund’s performance has lagged the aggregate returns of the biggest loser stocks.  Miller’s Legg Mason Value Trust has dropped 3.5% since our contest began.  The biggest loser stocks, on the other hand, have only dropped 2.72%

Mighty “American Fund Mutual A” gets beaten by the losers as well

When compiling these portfolios, I included commission fees for the stock purchases and the fund purchases.  Going with the mechanic’s analogy once again, this is what the American Fund’s mechanic did to his engine.  First, he took a crowbar and then smashed at it five times, before starting to work on it.  That represents the sales fee that this company charges to get into this fund.    As such, this fund is also losing to the biggest loser portfolio.  It’s down 3.67% since the contest began.

Overall, the mutual funds are winning, however

With an average gain of 2.85%, the mutual fund group is beating the loser stock portfolio, which has dropped 2.72%.

But some of the stocks chosen by my readers as certain toilet bowl fodder have gone on to surprise:

  • AIG:  +9.41%
  • Ford:  +29.42%
  • Kimco Realty:  +7.2%
  • Krispe Kreme Doughnut:  +46.45%

 

Have a look below to see what the respective portfolios have done since April.

23 loser stocks
Tuesday December 7, 2010 07:06 PM EST

Chart

Ticker

Company Name

Cost

Current Value

Gain / Loss

Gain / Loss %

Today’s Gain / Loss

Cash

$1,578.70

     

Overall Realized Gain/Loss

 

+$4,425.24

   

Total

$486,400.39

-$13,599.61

-2.72%

+$344.02

 

AA

Alcoa Inc.

$14.34

$21,542.15

-$283.96

-1.30%

-$129.41

 

AIG

American International Group Inc.

$40.17

$23,776.95

+$2,045.81

9.41%

+$189.35

 

AOL

AOL Inc.

$28.52

$19,552.92

-$2,181.69

-10.04%

+$114.30

 

ATAC

ATC TECHNOLOGY CORP

$18.21

$21,740.79

+$0.00

0.00%

+$0.00

 

BAC

Bank of America Corp.

$18.67

$13,489.61

-$8,275.55

-38.02%

-$81.61

 

BKC

Burger King Holdings, Inc.

$21.83

$21,867.41

+$0.00

0.00%

+$0.00

 

C

Citigroup Inc.

$4.62

$21,737.10

-$9.99

-0.05%

+$799.85

 

CIEN

Ciena Corp.

$18.07

$18,935.22

-$2,800.95

-12.89%

-$216.54

 

F

Ford Motor Co.

$12.80

$28,135.44

+$6,395.24

29.42%

-$152.91

 

GME

GameStop Corp. Cl A

$23.67

$19,681.92

-$2,047.95

-9.42%

+$174.42

 

GT

Goodyear Tire & Rubber Co.

$13.96

$16,359.00

-$5,385.09

-24.77%

+$124.64

 

JNPR

Juniper Networks Inc.

$31.26

$23,685.60

+$1,956.86

9.01%

-$48.65

 

KIM

Kimco Realty Corp.

$16.47

$23,532.65

+$1,581.44

7.20%

+$173.23

 

KKD

KRISPY KREME DOUGHNUT

$4.88

$31,846.10

+$10,100.59

46.45%

-$311.78

 

LLY

Eli Lilly & Co.

$36.91

$20,609.02

-$1,690.02

-7.58%

+$84.59

 

MSFT

Microsoft Corp.

$30.41

$19,378.49

-$2,549.72

-11.63%

+$21.64

 

NTRI

NUTRISYSTEM INC

$19.03

$23,391.29

+$1,250.98

5.65%

+$395.48

 

NWSA

News Corp. Cl A

$15.47

$20,288.22

-$1,562.49

-7.15%

+$194.26

 

PFE

Pfizer Inc.

$17.18

$21,668.43

-$532.15

-2.40%

-$51.68

 

STD

BANCO SANTANDER SA ADR

$14.55

$16,500.98

-$5,867.55

-26.23%

-$184.54

 

TXT

Textron Inc.

$22.55

$22,364.44

+$577.67

2.65%

-$77.29

 

USG

USG Corp.

$18.87

$15,909.12

-$5,827.59

-26.81%

-$576.00

 

ZION

Zions Bancorp

$24.58

$18,828.82

-$2,918.73

-13.42%

-$97.33

 

 

 

Selected Super Funds
Tuesday December 7, 2010 07:04 PM EST

Chart

Ticker

Company Name

Cost

Current Value

Gain / Loss

Gain / Loss %

Today’s Gain / Loss

Cash

$196.04

     

Overall Realized Gain/Loss

 

+$2,502.69

   

Total

$514,248.04

+$14,248.04

2.85%

-$234.42

 

AMRMX

American Funds Mut;A

$25.88

$43,107.59

-$1,641.79

-3.67%

+$17.29

 

ATHAX

Amer Cent:Hertge;A

$18.47

$58,298.94

+$5,424.80

10.26%

-$85.86

 

DODGX

Dodge & Cox Stock

$104.48

$50,218.10

-$58.45

-0.12%

-$9.62

 

FMIHX

FMI:Large Cap

$15.19

$50,362.85

+$10.55

0.02%

-$33.16

 

FPURX

Fidelity Puritan

$16.98

$52,674.53

+$2,099.72

4.15%

-$59.55

 

FSENX

Fidelity Sel Energy

$45.57

$55,124.25

+$5,133.96

10.27%

-$175.52

 

LGVAX

LM CM Value Trust;A

$39.72

$48,219.14

-$1,748.62

-3.50%

-$100.64

 

NEWFX

American Funds NWld;A

$52.57

$55,244.85

+$2,411.30

4.56%

+$70.35

 

PRFDX

T Rowe Price Eq Inc

$22.98

$50,307.79

-$194.21

-0.38%

+$43.96

 

SSHFX

Sound Shore

$30.62

$50,493.96

+$308.09

0.61%

+$98.33

 

And do you agree with me?  Do you think that the lousy stocks will keep pace with the superstar mutual fund managers over a long period of time?





About the author

andrew hallam

I'm a freelance finance writer, lucky enough to have been nominated as a finalist for two Canadian National Publishing Awards. I'm also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, a book explaining how I became a millionaire on a teacher's salary, while still in my 30s. Working to empower people financially, I'm available to motivate and inspire people on basic retirement planning and index investing. I'm happy to comment on your questions, first, please read the Terms of Use.

Permanent link to this article: http://andrewhallam.com/2010/12/the-biggest-loser-financial-update/

6 comments

Skip to comment form

  1. avatar
    Andrew Hallam

    Update on the update:

    I wrote this post about a week ago. The latest numbers

    The super mutual fund portfolio +3.9%

    The Loser Stock Portfolio +0.7%

  2. avatar
    The Biz of Life

    I would bet the lousy stock portfolio will outperform the superstars over a 3 – 5 year period.

  3. avatar
    Andrew Hallam

    @The Biz of Life

    Hey Biz, it's going to be interesting. Over those 3-5 years I should do a rough estimate of capital gains drag on each portfolio. I won't trade the lousy stocks, so they'll compound capital gains free, but the funds will have an annual tax drag of roughly 1.5% based on average turnover (using Bogle's data derived between 1994-2009). But even without the tax drag, you might be right!

  4. avatar
    Financial Cents

    I agree, this going to be an interesting journey. Thanks for doing this update Andrew, love this contest!

    I see one of my selections has been a great dog this year: Goodyear. Maybe there is hope that the funds will beat the stocks (at least in year one) because of this slug? :)

    Longer term, 5 years in, I'm with Biz of Life.

    It would be interesting to know if any of your readers ever held these stocks?

    I thought about PFE at one time for my RRSP, but decided to go with ABT (Abbott) instead. Better history of dividends. I think they just paid out their 348th consecutive quarterly dividend. Not bad eh?

    Cheers,

    Mark from My Own Advisor

  5. avatar
    Andrew Hallam

    @Financial Cents

    Hey Mark,

    Wow! 348 consecutive quarterly dividend payouts! I wonder how many Pfizer has made in a row. They must be up there too. Ironically, I own a few of those "dog stocks". Obviously, unlike the people who chose them, I thought (or hoped!) that they'd make me loads of money over time. I bought Microsoft at $25 per share, and I own Pfizer at an average cost of roughly $16.50. I guess I made a reasonably big bet with Pfizer–having about $40K in the stock. So I hope the person who picked Pfizer ends up being wrong.

    It's a fun/bizarre sort of contest, isn't it? Trying to pick the worst portfolio we possibly can, and then wondering, as spectators, whether it's going to beat the best pros.

  6. avatar
    The Everyday Minimal

    I say throwing a dart at some stocks on a newspaper might do better than trying to read ratios and rationalize where the stock will go.

    The major reason I think for this is human nature. We're irrational, unpredictable and we like what we like without knowing why. (Crocs and UGGs anyone?)

    Me, I invest in dividend paying stocks, things I use on a daily basis (Starbucks, Apple, etc) which are companies I trust in because I am a customer, and some in countries I think are well positioned for the future like Brazil

Leave a Reply

Before pressing "Submit Comment" please click the Picture Captcha below. (Tip: Just in case there is an issue with the submission process, highlight then copy your comment before submitting comment.)

 

banner
Advertisment ad adsense adlogger