My Future Is Not a Game

By TFB

I beat the market in 2009 … in a mock trading game. My return from $100,000 fake cash was +48.6%.

Among more than 100 Vanguard mutual funds, only 5 had a higher return in 2009 than I did in the game.

I only made 12 trades in this game. I did not buy on margin. Except one trade, I only traded ETFs, not individual stocks. I always had at least 25% of the portfolio in cash.

The good results are primarily driven by timing. I bought a few ETFs in February. Then I bought more in the first week of March. I took some profit in April and May (too early). When it was clear GM was going to go bankrupt, I shorted its stock. Here are my trades:

Date Trade Value Cash On Hand
1/1/2009 N/A N/A $100,000
2/18/2009 Buy VTI 500 @ 39.81 $19,912 $80,088
2/18/2009 Buy VNQ 200 @ 25.49 $5,105 $74,983
2/18/2009 Buy VTV 150 @ 34.28 $5,149 $69,834
2/18/2009 Buy EFV 300 @ 32.48 $9,751 $60,083
3/2/2009 Buy VEU 400 @ 25.19 $10,083 $50,000
3/3/2009 Buy VNQ 300 @ 21.61 $6,490 $43,510
3/6/2009 Buy VNQ 500 @ 21.19 $10,602 $32,908
3/6/2009 Buy VTV 250 @ 28.49 $7,129 $25,779
4/9/2009 Sell VNQ 1,000 @ 28.22 -$28,213 $53,992
5/5/2009 Sell VTV 400 @ 39.42 -$15,761 $69,753
5/5/2009 Sell VEU 400 @ 33.74 -$13,489 $83,242
5/28/2009 Sell Short GM 30,000 @ 1.16 -$34,793 $118,035

If you hear people say nobody can beat the market, it’s not exactly correct. People can and do beat the market in any year, as my trading game result shows.

I haven’t calculated my real portfolio’s rate of return for 2009. I’m confident it’s not as good as +48.6%. If I sold everything for cash on Jan. 1 and I did the same trades as I did in the game, wouldn’t I have made a lot more money? Yes, but I don’t want to do that. My future is not a game.

A game is a game. There’s no downside. I’m not going to gamble my hard-earned money. Getting the market returns is totally cool with me. I don’t *want* to beat the market because I don’t want the market to beat me. If I want to challenge myself and prove my superior skills, I can do it in a game. If I fail, I can always start over.

It’s no different from a shooting-the-enemy video game. You shoot the enemy and you advance. Once in a while, your character gets killed. But you the person is unharmed. It’s just a game. Does anyone want to play the shooting game with real guns and bullets? I don’t think so. Then why trade your real portfolio on a hunch?

If you have the urge to "play" with the market, do it in a game, not with real dollars. Have a view; act on it. Enjoy the excitement when you are proven right. Brag about it. A game won’t hurt you.

I created a new game for 2010 and beyond on Investopedia. It’s called TFB Invitational. Click here to join the game. Let’s have some fun trading fake dollars. Leave your real investments alone in a boring asset allocation. Your future is not a game.

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Posted on January 7, 2010 under Investing. Keywords: .

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Comments

4 Comments on My Future Is Not a Game

  1. Jay on January 7, 2010
     

    Fun, but your conclusion that “People can and do beat the market in any year, as my trading game result shows” is incomplete. People do beat the market, but research demonstrates that this does not happen consistently and with predictability.

    Your “beating the market” in this instance is meaningless in the context of making broad statements about active investing. If you went to a roulette table, placed all your money on the number 15, and won – would you then conclude that the odds of roulette are in your favor?

  2. TFB on January 7, 2010
     

    Jay – This post is not about whether the odds of beating the market is favorable or not. Even if it’s favorable, which I don’t believe it is, one is better off not playing the game because one’s future is not a game.

  3. Pelon on January 7, 2010
     

    I don’t agree that you shouldn’t “play” the market with real money. If someone enjoys stock picking, having actual money involved can make it more interesting. Like gambling, though, the best approach is to never use more money than you can stand to lose.

  4. RetirementInvestingToday on January 9, 2010
     

    Unfortunately in real life my strategy didn’t beat the market last year. Using a very basic asset allocation which would have been 78% stocks and 22% bonds I could have achieved an increase of 23.7% (not taking fees into account).

    Instead I flex my asset allocation by using a stock market valuation method which is the ratio of the price divided by the average of the previous 10 year earnings as proposed by Yale Professor Shiller. This resulted in a 2009 return of 21.5% (after fees).

    Guess that means Jay’s comment holds true. Although I guess that the fact I lost means that somewhere in the world somebody won.

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