The Investment Scientist

My Fun Investment Account’s One Year Report

Posted on: October 27, 2013

ImageAs far as investment philosophy is concerned, I am solidly in the camp of Nobel Prize winner Eugene Fama and Vanguard founder Jack Bogle. They both believe that the market is by and large efficient, and there is no point in picking stocks.

Most of my money is in broad-based passively managed asset class funds, but I do set aside 5% just to have some fun with and right now I only have three stocks in my fun account.

Safeway

I bought SWY last November after going to the Chicago Booth Entrepreneur Advisory Meeting. From the meeting, I learned that big retailers routinely write off their inventory at a huge loss. The reason being that they can not control demands as they have little information about the needs of the individual consumer, though they can usually make a rough guess on aggregate needs.

I noticed my wife had been shopping at Safeway more and more. After a little digging, I found out Safeway had set up a technology system to track each individual’s needs and price sensitivities. Then it can make targeted offers to shoppers like my wife that unfailingly brought her back over and over. I recalled my earlier meeting and realized they would save tons of money just from better inventory management.

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Google

I bought GOOG after that read about its self-driving cars. Google is a very interesting company. It’s core business – search and advertising – is a cash printing machine that is growing respectively. But Google does not just stop there, they are using their cash to invest in all kinds of crazy ideas like Google Glass, self-driving cars, Wi-Fi Loons etc.

I personally think the self-driving car idea will be a game changer. I want one for myself now. I can’t wait! There is at least a $100 billion market there and Google is the pioneer. Since I can’t get the car yet, I might as well get the stock.

Apple

I first bought AAPL when it crashed from about $700 to $550, then again when it dropped below $450. With a forward PE of 12 and a cash hoard bigger than the US Treasury, I think the stock is exceedingly cheap. In fact, the cash itself is already worth $150 a share; so the actual PE is way less than 10.

The Report Card

So far, SWY is up 114%, GOOG up 54% and AAPL up 7%.

I had a lot of fun, but I also found that I had spent too much time reading, especially about Google. Time I could have spent with my family, or doing more productive things. Surely you can and should have your own fun account, but for the mainstay of your investments, it’s best to just follow Eugene Fama and Jack Bogle’s sage advice.

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



You may also get his monthly newsletter, or join his Facebook page for regular wealth management insights. Michael's email is info[at]mzcap.com.

Twitter: @mzhuang

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