On Picking Stocks and Mutual Funds: An Experimental Proposal

[Important disclaimer: I am not a registered investment advisor. If you choose to try the experiment described below, which is shared with everyone for free, the risk is yours alone.]

Lots of people have jumped into the stock market lately, many of them with little experience. That isn’t stopping them, though; they’re creating Robinhood accounts and trading penny stocks at a blinding rate. I’m writing this to propose an experiment individuals can use to evaluate their own skills at picking stocks and mutual funds. This experiment does require some experience investing, but not much.

First, divide your investment capital into three parts of equal size. With the first part, buy either QQQ or SPY, or equal amounts of each. These are ETFs which track well-known stock indices: the technology-heavy NASDAQ 100 and the broader S&P 500, respectively. This chart shows how the S&P 500 has performed over the last five years.

stock chart

This first third of the investment money is analogous to a control group; it is the standard by which we measure the performance of the other two-thirds.

The second third is to be invested in no-load, open-ended, actively-managed mutual funds. You should try to choose the best ones you can find. Two that I’ve bought shares of, myself, are TRBCX (a fund which invests mostly large-cap blue-chip stocks), and WAMCX (a fund investing in small-cap, rapidly-growing companies’ stocks).

The final third is made of stocks you pick and buy/hold/sell yourself, using whatever criteria you choose. If you run this experiment for six months (or longer), and this third is the largest at the end of this period, you have good evidence that your stock-picking methods work well, justifying continuing investing in this manner.

If, on the other hand, your hand-picked mutual funds do best, then the data supports the idea that you’re a good fund-picker, but should probably not invest in individual stocks.

Finally, what if SPY and/or QQQ do best? If that is the case, I wouldn’t try to beat the market with my own picks, but would simply invest in open-ended index funds, or ETFs.

I’m trying this experiment myself. So far, my hand-picked mutual funds are doing best. If the running of this experiment continues in this way, I’ll abandon the picking of individual stocks, in favor of mutual funds. Of course, it’s always possible to study and learn new things. If this running of the experiment yields the answer “funds,” there’s nothing stopping me from studying stock-picking some more, and then repeating the experiment to see if I get better results for the choosing of individual stocks. One could also abandon the experiment, but continue to invest in those particular stocks which did well.

There are some types of investment I haven’t mentioned here. Cash, money market funds, CDs, and bonds were not mentioned because interest rates are at historic lows, limiting the return one can get from such investments. As for derivatives, such as options or futures, those have not been included simply because I have no experience with derivatives. Traditional hedges against inflation, such as gold and silver, are not included because inflation is almost non-existent.

One last thing: Robinhood’s customers will have a hard time doing this experiment, for that company does not offer mutual funds. Schwab does, though; that’s the broker I use — and the one I recommend. You can find them online at http://www.schwab.com.

Is This What’s Going On? A Set of Questions of Global Concern.

Is This Whats Going On

I have a set of conjectures, and want input from my friends and blog-followers about them. How much of this has actually happened over the past months, weeks, and days?
 
1. The Chinese have been buying huge amounts of silver, thus driving up its price, because…
 
2. The political and business leaders in Greater China are, themselves, sick of living in an environmental nightmare based on decades of high consumption of oil and dirty coal, and are working on building enormous numbers of solar panels to get away from fossil fuel consumption, using lots of silver, which has the highest reflectivity of any element. China’s silver buying-spree is being misinterpreted, globally, because China is not well-understood, outside China.
 
3. These leaders of China have to breathe the same air, for one thing, as many Chinese people with much less power, and going green is the pragmatic thing to do. It is quite Chinese to be pragmatic. Living in Shanghai, Beijing, Hong Kong, Taipei, or other population centers, air quality is a major issue, as is global warming and other environmental concerns — all issues which many Americans are in the habit of ignoring.
 
4. As the Chinese phase themselves out of the human addiction to fossil fuels, total global oil consumption drops. Evidence: gasoline prices fell. I was buying for under $2 a gallon a week ago.
 
5. Falling oil prices have led to severe economic problems in the oil-producing countries of the Middle East. Higher-than-usual amounts of political stability have rippled through the Middle East through the last five years, and this has intensified further in recent months. The latest such development has been in Turkey, often seen as the most politically stable country in the Muslim world, is going through an attempted(?) coup, on the far side of the Middle East from China.
 
6. In the USA, one of the people running for president is a reactionary xenophobe, as well as a populist demagogue, and is running against an opponent with little to no ethical principles who is winning by default because she’s running against Trump. Donald Trump and his people (and he has a lot of people) have been spewing Islamophobia and Sinophobia, and they’ve been doing it loudly.
 
7. Many people all over the world are reacting to the Trump Trumpet o’ Hate, and freaking out. Various end-of-the-world scenarios are been floated publicly, especially in cyberspace. People are getting “off the grid” if they can, either because it’s a good idea, or because they’re panicked. In some places, efforts are actually being made to use the force of government to stop people from weaning themselves off the services of utility companies.
 
8. Few people realize that a lot of this is a set of unintended consequences of China (of all nations) leading the charge to do the right thing regarding oil addiction, from an environmental and ecological point of view, plus having a lunatic run for the White House.
 
9. The rising price of silver, panic-in-advance about a widely-expected coming collapse of fiat currencies, and the pronouncements and predictions of Ron Paul and his ilk, are all feeding off each other, in an accelerating spiral. In the meantime, the political instability in Turkey is capping off a slight rise in gas prices over recent lows, just in the last week.
 
10. Most Americans don’t know much about a lot of this because we’re at a point in the current, nasty election cycle that America as a people has simply forgotten (again) that the world outside the United States actually exists. Ignorance about the Middle East, economics, environmental science, and Greater China is widespread in the best of times. Thanks to (a) the “Donald and Hillary Show” playing 24/7 on cable news, (b) civil unrest at home (brutality on the part of some, but not all, police), and (c) a backlash against Black Lives Matter, with horrible behavior from some, but not all, of the protesters on all sides, and (d) an anti-or re-backlash against BLM is in “full throttle” right now, and (e) unrest abroad (Turkey, etc.), these certainly aren’t the best of times.
 
I invite anyone to weigh in on the subject of which of the above conjectures are valid, and which are invalid. I have deliberately cited no sources, yet, because I am asking for independent peer review, and so do not wish to suggest sources at this point. In addition to “Which of these statements are correct, and which are wrong?” I am also asking, “What am I missing?”

A True Story from My Childhood: Roman Numeral Dollar Signs

roman numeral dollar signs

When I was a child, I learned Roman numerals before I learned about the dollar sign. When I first encountered a dollar sign, I interpreted it as an “S” with a Roman numeral one superimposed over it. It then followed (I thought at the time) that the symbols for $2 through $10 would look like those shown above.

Fortunately, it didn’t take long before I figured out this would be impractical. I certainly would not want to have to write the symbol for $3,978, after all.

Not “Dead Presidents”

Image

Not Dead Presidents

Attention, Americans:

These two men, Alexander Hamilton and Benjamin Franklin, are, indeed, dead. However, neither of them ever served as president. Therefore, please stop calling money “dead presidents,” unless you are excluding these two denominations, and, moreover, please stop this immediately.

Your cooperation is appreciated.