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This year (2015), I am participating in the Grow Your Dough Throwdown as one of 20 personal finance bloggers. To date, my account has grown over 30%, currently surpassing S&P performance.
This growth rate should put me in third place, behind the High Yield Dividend Portfolio created by Bible Money Matters' Peter Anderson and a single-stock portfolio created by Philip Taylor of PT Money. Yay for me!
How Motif Investing and the Throwdown Works
Motif Investing is a brokerage firm offering consumers a unique and generally cost-effective way to construct, buy (and sell), and rebalance a portfolio. You can assemble stocks into a portfolio according to a theme or motif (or just select stocks according to your preference) and then buy the portfolio for a fixed dollar amount, all for just $9.95.
Buying shares at a more traditional broker would generally cost much more as you'd pay a flat fee (ranging from $4.95 to $9.99) for each issue. For example, if you bought the stock of 10 different companies, your trading cost could be $49.50 or more at a traditional broker but $9.95 with Motif Investing. Further, you'd have to manually figure how much to allocate to each stock whereas Motif Investing allows you to set the allocation and purchase fractional shares to get a balanced motif from the start.
Here are the basic rules of the Grow Your Dough Throwdown competition sponsored by Motif Investing:
- Competitors are 20 personal finance bloggers organized by Jeff Rose, CFP and author of GoodFinancialCents.com, in collaboration with Motif Investing
- In preparation for the competition, each of us constructed a motif (comprised of up to 30 stocks, ETFs, ADRs, and ADSs selected according to a theme or motif), chose a motif from the Motif Investing catalog, or modified a catalog design
- Each of us opened an account and Motif Investing kindly funded the account with $500
- On January 2, we invested $480 in our chosen motif (leaving a cash cushion) and the contest began
- On a daily basis when the markets are open, the competition stats are updated on a public leaderboard
- The motifs compete on the metric of Return Since Creation from January 2 to December 31
- The motif with the best return at the end of the competition wins
Through much of the first half of the year, my motif performed well and ranked between third and tenth depending on market fluctuations. In July, things changed. My account performance remained strong but the motif as depicted on the leaderboard declined in value.
Why My Account Crushes My Motif
Here's what happened: one of my selections, eBay, split with PayPal in July 2015. As owner of eBay shares, I received shares of PayPal equal to the value of half of my eBay shares. My account reflects the PayPal holdings but my motif doesn't. (At the end of July, I asked Motif Investing to update my motif to reflect the PayPal shares as returns should reflect corporate actions such as a spin-off; however, this change has not yet happened.)
Here you can see the difference:
I knew that an eBay/PayPal split was pending but didn't realize how it would affect my motif. While my portfolio is crushing the market, my motif looks like it is eeking out market returns.
Why You Should Track Your Numbers
I'm bummed about not being recognized (yet) for my performance. This turn of events reminds me of a 5K race earlier this year. On a cold, rainy winter day, I pulled myself out of bed to compete in a small community race benefiting an area charity. The group sends teens and their chaperones to do home rehab work for low-income families in rural North Carolina and partners with a church in Asheville to build affirming relationships between the housed and the homeless.
Most of my race training had been focused on a 10K, but I decided to assess my speed work at this 5K and contribute to the sponsor's fund-raising efforts. I finished in 26 minutes, 23 seconds. Based on my evaluation of the competitive environment, I surmised I was the third female to cross the finish line, a few minutes behind a preteen girl and a minute or so behind her mom.
Not only did I check out my competitors, I also noted my time when I crossed the finish line and recorded my time on my Garmin. There can often be a discrepancy between what I've documented and the official time, but generally they are within a few seconds of each other. (Yes, I'm a numbers person.)
Despite the rain, I decided to hang around to see if I won any door prizes and collect my age-group award. Imagine my surprise and disappointment when the first place medal for my age group was given to someone who finished in 51 minutes. Immediately, I pointed out the problem to one of the race organizers who promised to investigate.
There are many times in my life when I've flat-out failed. But situations like these are exasperating as I've performed well but can't get recognized for my success. (In the 5K case, the organizers worked with the timing organization to pinpoint the cause of the error, offered an apology, and corrected the race results on its website within days of my complaint.)
Having documentation can often help you work with other people to fix problems and right the score.
How I Built My 30+% Portfolio
Moving on, let me share the basics of building a portfolio that has grown more than 30% this year. I developed this mix largely based on my previous knowledge and gleaning of what worked well for me during the previous competition:
- Use professional guidance as a starting point for stock selection
- Purchase quality, modern blue-chip stocks (think Nike, not IBM) with growth potential
- Pay a fair price for purchases, avoiding stocks that seem overvalued
- Focus on a stable core for the portfolio, preferring the possibility of price stagnation over loss
- Add a small percentage (about 10%) of small-cap growth stocks, knowing that a good guess could propel me to the top of the rankings while a wrong guess won't destroy me
- Invest in companies that sell items people or companies use everyday
Going forward, I plan to use this approach to molding my portfolio, focusing on preventing loss (per Benjamin Graham, author of The Intelligent Investor and mentor of billionaire investor Warren Buffett) as much as vetting growth companies. Economic conditions will vary so my results will vary in the future but I am pleased with what I have accomplished this year.
Updated January 5, 2016 to reflect end-of-year standing.