So the Mechanic entered FI Garage in a stock picking contest – which is great – but then he went rogue! He started picking stocks! Can you believe it? He put the whole portfolio into stocks…UGH. All three of us in the FIGarage agree that in real life when we pick stocks we are doing it with money we can “afford to lose”. We invest the equity portion of our retirement savings in ETFs, and if we have some extra spending money that we want to invest, maybe then we pick stocks.
So the Accountant and I tried to convince him he was out to lunch, he told us it was a ‘stock picking contest’ and investing in ETFs wasn’t really the idea behind that sort of contest. We think rules are made to be stretched but not broken so this is our portfolio for the Stock Picking Contest: 25 percent investment in BPY.UN* ($21.93 on January 2, 2019) and 25 percent in each of the following 3 ETFs: VUN* ($47.23), VDY* ($30.21), VIU* ($25.65). We would have bought everything on January 2 and made no trades throughout the year, except reinvesting any dividend payments in the fund making up the lowest portion of our portfolio at that time. We are going to assume zero fees for investing in the ETFs and a $9.99 fee for purchasing BPY.
We have one-quarter of our investment in real estate and one quarter in each of Canadian equities, US equities, and international equities to give some representation of diversification. However, the allocations are not thought out, all of our real estate investment is with one company and the equity ETFs were picked without a great deal of thought.
This might not be what we’d do in real life, but it is a reasonable approximation that will provide a decent comparison of ETF investing vs stock picking.
On January 28 our ETF based fund is up 5.2 percent before the impact of USD/CAD exchange – the contest is based on a fund of $100,000 USD and we assumed we were able to convert at the posted exchange rate less one percent – and after the impact of the change in the exchange rate our fund is up 6.4 percent. This would put us in 3rd place (out of 18 participants) and well ahead of the 17th placed Mechanic at -0.4 percent.
Remember, this is early and we could end up much lower on the list by the end of the contest – heck the Mechanic could even beat us – although we don’t think he will. In fact, we expect we won’t win over a one year period. Lots of stock pickers can do well over a short period of time. What we do expect is that we will perform better than average and that if the contest had a long term time horizon we would come out on top or very near it.
We are going to track how we do vs. the Mechanic and the rest of the stock pickers in the contest a few more times this year, so watch for it and buy those ETFs- should be fun!
*Disclosure, we each already own a position in some or all of BPY/the ETFs mentioned in this article and the content of this post is our personal opinion, not investment advice.