It's Just Money

Start Trading!

The CNBC Million Dollar Portfolio challenge begins today.  So, get that portfolio set up!  If you haven't signed up, go to CNBC now.  I think they'll still let you in.  A couple of things about the rules that I discovered.

1. You can't buy ETFs.  Not the Qs, not the Spiders, and not any of the smaller ones.
2. You also can't buy mutual funds, options, bonds, or really anything other than common stocks.
3. You can't short the market or any stock.  Given the timing of this contest with respect to last week's market, I'm sure there are many contestants interested in this.
4. You can only buy stocks that are above $500 million in market cap.  No micro-cap stocks.
5. Trades are priced at the end of the day, just like mutual fund orders.  This is probably the most surprising rule.  Why give 50 trades per day, and run a 10 week contest with end of day pricing?  It seems like they were encouraging day trading.

Remember, send me your portfolio value at the end of the week.

Happy Trading! 

Or at least, happy buying with the understanding that prices as of the end of day will be reflected in your hypothetical portfolio.

Hey, let's all take part in the CNBC Million Dollar Portfolio Challenge

Hey PFbloggers and readers,

I have a proposal.  Let's all take part in the CNBC Million Dollar Portfolio Challenge.  It's free to join, and you can actually win prizes of $10,000 or the grand prize of $1,000,000.  It's very simple.  You sign up at CNBC's web site.  Beginning on March 5, they give you $1,000,000 in CNBC bucks.  You can make up to 50 trades per day and the goal is to have the largest portfolio after ten weeks.  Each week they will award $10,000, and after ten weeks twenty players will compete for the $1,000,000 grand prize.  How cool would it be if one of us won?

Here's what I propose to make it more fun among us.  Each week I will post our group's results.  I will rely on emails or comments from you to keep your information updated.  Of course, as I am not running this thing, your results will have to be on the honor system.  At the end, I would encourage all blogger participants to post a congratulations to the winner with a link to his/her site.

As a disclaimer, I am not affiliated with CNBC in any manner whatsoever.

Post a comment or send me an email if you plan to participate.  Remember, the contest starts on March 5, so sign up today!

Market takes a beating today

So, what do you do?  Is it the beginning of a more significant decline?  A bear market?  We haven't had a bear market since October 2002, nearly the longest duration without a bear market in history.  During the ensuing bull market we haven't had a single 10% correction (based on the Dow Jones or the S&P 500).  We're kind of in historic territory.

Or is this merely a much needed sell off to release some steam?  It's like earthquakes.  If you don't have a bunch of little ones, the big one to follow will be REALLY BIG!  So, this is just one of those 3.8 Richter scales jolts.  Enough to get our attention, but it doesn't mean "the big one" is coming, right?

I don't know.  As of this writing, Asian market continue their slide into the next day's trading.  If the Chinese drop is what precipitated the decline in U.S. markets, this doesn't seem to bode well.

Well, I guess the usual advice is to tell you not to panic.  I'm certainly not planning to.

The Bogleheads' Review, Chapter 19

Welcome to the Bogleheads' October Project, Chapter 19, "Mastering Your Investments Means Mastering Your Emotions."

Let's start with a little quiz:

1.  A bat and a ball cost $1.10 in total.  The bat costs $1.00 more than the ball.  How much does the ball cost?

2.  If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100 machines to make 100 widgets?

3.  In a lake, there is a patch of lilypads.  Everyday, the patch doubles in size.  If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half of the lake?

We'll come back to the answers at the end, but trust me, this relates to the my review of Chapter 19 of the Bogleheads' Guide to Investing.

When it comes to investing, we are all better off to be like Mr. Spock, above.  Emotions, at times, serve us very well.  The fight or flight reaction pumps up our adrenaline and helps us either in battle, or to get the heck out of a bad situation.  However, knowing which to do when is often when our emotions get the better of us.  Things like ego and overconfidence could be big trouble.

We are all emotional beings.  This we know.  We get excited, fearful, optimistic, depressed.  These emotions have a greater impact on our decision making than most of us would like to believe.  In the end, almost all of us, in almost everything we do make one massive error that, if applied to investing, could cost you dearly.  What is this error?

We make decisions emotionally and justify them rationally.

Dave Ramsey Investing Advice

I'm a pretty big fan of Dave Ramsey.  He preaches (and I mean preaches) debt elimination more vehemently and consistently than any other advisor or radio personality I have ever seen.  His baby steps plan is sound and should work for most people.

However, once you have paid off your debt and fully funded your emergency fund, I think Dave Ramsey's usefulness effectively ends right there.  I was listening this morning and I hear the following call:

Dave:  Robert in Memphis Tennessee, welcome to the Dave Ramsey show.  How can I help?

Caller (not really Robert, just using a name): Hi Dave, thanks for taking my call.  My Dad is one of these guys who saves up some money and once he has enough goes to the bank and buys another CD.  I hear you talking about these... mutual funds?  Can you tell me what's involved, the pros and cons?

The Bogleheads' October Project Kicks Off Today

JLP at All Financial Matters has put together a project called the Bogleheads' October Project for a bunch of us Personal Finance bloggers to participate in together.  We all thank him for his time and effort.  The idea is this.  We are reviewing the book, one chapter at a time.  We have each been assigned one chapter, and each day the next chapter's blogger will post his/her review.

I am up to bat on Wednesday, October 25, reviewing Chapter 19, "Mastering Your Investments Means Mastering Your Emotions."  This should be a lot of fun.  I'm really into understanding how behavioral economics affects our decision making.

I'm sure they will all be very interesting, well written and insightful, but I can't help but look forward to a few in particular.

Chapter 7, Jim at Blueprint is reviewing "Keep it Simple."  This couldn't be more appropriate.  Jim has a knack for making a variety of topics simple and readable.

Chapters 10 and 11, Don't Mess With Taxes is reviewing, "Taxes Part 1," and "Taxes Part 2"  Taxes is an often overlooked or undervalued part of investing.  I'm very interested in reading Kay's take.

Chapter 13, Ramit at I Will Teach You to Be Rich is reviewing "Performance Chasing and Market Timing are Hazardous to Your Wealth."  Seems appropriate.

Chapte 15, J.D. at Get Rich Slowly will review "How to Manage a Windfall Successfully."  I just love the irony.

Chapter 16, Cap at Stop Buying Crap will review, "Do You Need an Advisor?"  Cap is definitely one of the most frank, creative writers among personal finance bloggers.

Chapter 20, Dawn at Frugal for Life will review "Making Your Money Last Longer Than You do."  Making your money last is a function of managing your income/portfolio growth and your spending.  Who better to write about this than Dawn?

Chapter 21, Financial Freedumb will review, "Protect Your Assets by Being Well-Insured."  Insurance is an often overlooked area of personal finance.  I'll be interested in reading FF's review.

The Dow Jones Industrial Average and its Historic Psychological Barriers

The Dow is trading at record highs!  Yeehaw!  Well, almost.  As of this writing, it traded above its all time closing high, briefly.  Will it close above that level?  Maybe.  Does it matter?  A little.  There are two other times in the 110 year history of the Dow Jones Industrial Average when it encountered such a massive psychological barrier.  What is a psychological barrier, and why does it happen?

Technical Analysis Review: The Golden Cross

I am by no means an expert in Technical Analysis, but I have studied it with some interest recently.  Much of the money management and academic financial community disregards technical analysis as akin to palm reading or fortune telling.  Since the works of Harry Markowitz, the academic and money management community have accepted the Efficient Market Hypothesis as law.  Anomalies are recognized, but are disregarded as just that.  Anomalies.

Technical analysis incorporates the use of history and charting in attempt to explain why a stock is moving up, down or sideways, and to use that information to glean some insight as to what it may do next.  I won't take sides on the debate, but I'll say that you are doing yourself a disservice by completely disregarding technical analysis.  Isn't it a better idea to study all methods of investing, then determine which method, or combination of methods, makes the most sense to you?

There are numerous terms and rules in technical analysis, most of which I am still not familiar.  There is one that I recently read about called the "Golden Cross" or its counterpart, the "Death Cross."  I did some analysis on the concept.  Here is my definition of the rules, and my analsysis of whether or not it is effective.

Investor Mistake #3: Chasing Performance

Don't chase performance.  It's one of the oldest, most commonly given pieces of investment advice.  Yet, most investors do it.  How do I know that, and why do they do it?

Let me answer each separately.

Market Timing Works: It Reduces Risk, Not Return Potential

I know, I know, it's blaspheme.  Smart investors buy and hold, market timers fooling themselves.  It's time IN the market, not TIMING the market that counts, right?  Market timing is a losing game.  We have all the evidence, right?  Miss the ten best days of the last 30 years, and your return will drop from 11.83% to 10.17%.  Miss the 20 best days, and you're down to 8.98%.  Miss the 90 best days and you're all the way down to 3.28% average annual return, less than T-Bills!

This fact, and it is fact, is often quoted by mutual fund sellers, but rarely understood, and almost never will you find the complete research disclosed.  This is mostly because they don't know the source.