Managing a pretend investment portfolio

  • What it is all about: learn the ins and outs of stock and bond investing with a pretend portfolio, along with regular tips from Moneywise during a yearlong series

    What it is all about: learn the ins and outs of stock and bond investing with a pretend portfolio, along with regular tips from Moneywise during a yearlong series


US capital markets were on another tear and another all-time high last week.

But is it for real? Is it driven by exemplary corporate earnings and corporate buybacks, or by twitter news, tariff vacillations and puffery?

The inverted bond yield curve has reversed, so maybe it is not time for another crash and recession. Who knows? Only time will tell.

In the meantime, good companies will continue to report good earnings, concomitantly as their stock price increases in value. Businesses under stress for numerous reasons: change in consumer tastes, high production costs, changing workforce demands, obsolescence, nationalism — where citizens boycott goods and services produced outside the country borders, will struggle, but hopefully not permanently.

Whatever the outcome for a publicly traded corporation, capital investment markets are here to stay.

Investing is a subject of intense interest and strategy manoeuvres every day for those in that stratosphere, so it behoves Moneywise to encourage every reader to take on another opportunity to learn more.

The chances are your older children are already outpacing you in this area with the annual KPMG Stock Challenge and other such endeavours. After all, as we pointed out in The Royal Gazette article of October 12, “Why Bermudian investments matter to you,” we all use these products and services every day of our lives. Why aren’t we investing in these companies by owning their stock as well as purchasing their products.

Bermuda islanders, and others, over the years have confided to me that they can’t get into the investing mode. They are just too afraid of losing money.

Consider this, a profitable company returns some of those retained profits as dividends back to every shareholder.

Example: for years, you have pulled into an Exxon (or any publicly-traded oil conglomerate, e.g. Chevron, BP, Royal Dutch) gas station once a week, to fill up. Exxon pays a dividend. If you owned Exxon shares, you could think of your dividend as a discount applied against all those vehicle fill-ups over the years.

But you say, I don’t own any stocks.

My question is why not?

And my second statement is — oh, but you do own stocks if you have a Bermuda National Pension defined contribution plan with your employer.

Readers have also asked: “What happens if the value goes down? Then, I get panicky and think I should get out.”

Sometimes common reasoning is overridden by emotion. The first thought a beginner investor should have is this:

1, Are the companies whose shares I own going out of business? No.

2, Am I still buying these products? Yes

3, Is the company financially solvent? Yes

If those are your answers, then there is a good reason to just wait and see how companies perform over the long term. And while you are waiting, learn more about them.

Moneywise is setting up a “pretend portfolio” to illustrate, track, rate performance, screen, and analyse 20 securities in a reader-user interface for the next year. Once a month, Moneywise will review relevant data, discuss performance and seriously encourage readers to think about setting up a mock portfolio of their own.

Your investment portfolio experience task, if you are interested in simulating this stock ownership experience, is to put together a group of stocks, and possibly bonds, of companies you like and whose product or service you’ve used for years.

The stocks can be from Bermuda, the US, Canada, the UK, and maybe China, where most of our imports are derived. China is not a completely open investment market as yet. However, Hong Kong and the US trade access to some of their companies. Consider the BATS, Baidu, Alibaba, and Tencent are considered alternatives to the US FAANG stocks of Facebook, Amazon, Apple, Netflix and Google.

Informal Rules

Put together a list of securities: 20 all together, each representing 5 per cent of the total portfolio and enough to keep you interested, but not frustrated.

You can also arrange allocations in any manner you choose.

Use various sectors: consumer goods, reinsurance/insurance naturally, finance, oil, renewables, high-tech, banks, manufacturers, utilities, healthcare, industrials, water, and so on.

If you are not sure what you’d like to follow, check out the article of October 12 listing some of the many stocks the average Bermuda islander is exposed to in a day, there is a link in the references section at the end of this article.

You will have a total of 20 positions, and you determine the percentage amount to invest in each position.

Moneywise will feature the balanced portfolio. Here are the allocation choices:

Totally aggressive: 100 per cent in equity stocks

Balanced portfolio: 12 stocks and eight bonds, for a 60/40 per cent portfolio split.

Conservative: eight stocks and 12 fixed income bonds, for a 40/60 per cent portfolio split.

As for which sectors to choose, they can be anything you want. Simply type economic or investment sectors into Google.

You can also use Yahoo! Finance. The US website is www.https://finance.yahoo.com. There is a Canada site at: ca.finance.yahoo.com; and a UK site at: uk.finance.yahoo.com

You’ve got the brand names, generally that is enough. The search will then link you to numerous financial investment websites where you can document your choices and find the stock symbol of the company shares.

For the beginning value this week, pick the same day for all security valuations, and to keep it simple assume that you own only one share of each security.

We will track the portfolios of Moneywise and two readers on the first Saturday of the month for the next 12 months, ending with next year’s World Investor Week with the Bermuda Stock Exchange on October 1.

Let me hear from you. What will your portfolio look like? Send your choices to my e-mail: martha.myron@gmail.com

The first two readers to respond will be featured throughout the year as they manage their individual investment portfolio. Please let me know if you wish to remain anonymous.

Next week, Moneywise puts the portfolio together.

This week’s article was originally intended to discuss the Bermuda Pension Commission Audit results for 2011-2017, tabled in Parliament.

However, I’m informed that the digital file is too large to be downloaded. Wait, what happened to the tech-savvy reputation? Why can’t this report be compressed and available to the public?

References:

• Ten things investors should know about the China ‘A’ market. American Century.com. https://tinyurl.com/y4y4lx8f

The top 10 best sectors in the market for 2019. Yahoo! Finance. https://tinyurl.com/yxbude7a

Why Bermudian investments matter to you. The Royal Gazette, October 12, 2019. https://tinyurl.com/y5drqnh6

Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Dual citizen: Bermudian/US. Pondstraddler Life, financial perspectives for Bermuda islanders and their globally mobile connections on the Great Atlantic Pond. Finance columnist to The Royal Gazette, Bermuda. All proceeds earned from this column go to The Reading Clinic. Contact: martha.myron@gmail.com

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Published Nov 11, 2019 at 8:00 am (Updated Nov 11, 2019 at 9:14 am)

Managing a pretend investment portfolio

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