My Foray into Investing

While still in Las Vegas I decided to put my Economics degree to work and bought some stock. The economy was in a downward spiral and Lehman Brothers was collapsing, so I sensed an opportunity. I bought $500 worth of Freddie Mac, Tata Motors, MGM Mirage, and Bank of America between October 1st and 20th (total investment - $2,000). Then the market crashed further so I bought another $500 worth of Ford Motor Co. and U.S. Steel in November (bringing total money invested to $3,000). I plotted my portfolio's progress against the Dow Jones Industrial Average and included it below (I'm in blue and .DJI is in red). So what have I learned?


A lot actually. First, I bought in waaay too early. My short-term losses are massive. I'm still down 80% on my MGM purchase. The car companies were good buys. Tata is up more than 20% from where I bought in and I'm up 60% on Ford. My whole portfolio is down about 25% as of March 26th, but up from its lows of -53%.

I learned a lot about so-called investment professionals as well. Since moving to Boston I've become a loyal viewer of Mad Money starring the much maligned Jim Cramer. Cramer wrote a book in 2008 (right before the massive stock market losses) and in it he recommended 20 stocks for the next 18 month period. I created a value-weighted portfolio in Google Finance to track Jim Cramer's picks against my own. I gave him a break and decided not to track his picks from when he made them but from when I decided to buy in October. So what does a fully diversified portfolio chosen by a professional have over me? Nothing. I'm down 26.67% as of this morning and he's down 33.19%. I'm actually winning if you can call losing 26.67% of your money winning. Also -- on Jim Cramer's February 20th show, he recommended a 'recession portfolio' made up of a gold mine, Wal-Mart, Verizon and a few other things. I tracked this portfolio's progress against my own and since then, I'm up 41% and he's up only 1.5%. I think the purpose of that 'recession portfolio' was to prevent losses, not make money though, so maybe being up only 1.5% is what it's supposed to do.

Anyway, I'm confident my picks will pay off in the long-run, which is why I bought them when I did. If I had a job right now, I'd be plowing cash into the stock market as fast as I could. Unfortunately I am not employed, so I can't. Anyone in a better position than me will be rewarded for being brave. Just my opinion.

Technorati tags: Stock Market, Investing, Jim Cramer, BAC, FRE, Ford, Tata, MGM, US Steel