I’ve joined a number of other financial writers in the “Grow Your Dough Throwdown,” a stock market competition. At the beginning of 2014, each of us will invest $1,000 in the stock market through a discount brokerage. We can trade as often as we like, and publicly track our investments throughout the year. It’s similar to the stock market game I played as a child, but rather than starting with $100,000 in fake money, we start with $1,000 of real money.
I established my account and made my first trades yesterday. I chose ShareBuilder as my discount brokerage because I already had an account there, several accounts, in fact, because when I opened the accounts initially, ShareBuilder was offering a bonus in the form of free money. I used that free money to invest in Toyota, as the company had been going through a bad public relations cycle and I assumed the stock price was reflecting short-term problems, Microsoft, and Akamai.
To participate in the Grow Your Dough Throwdown, I decided I would follow common investing advice. Look around your house. What brands do you see most often? What products do you really like? Those are the companies that you can target for your investments. That’s exactly what I did for this investing challenge. With $1,000 to use, I decided I would invest $200 in five different companies. I thought about my life and the products I use every day and I came up with a list:
- Honda. I’ve driven Honda Civics since 1999. I bought the first car used, a 1997 Honda Civic, and then purchased a new 2004 Honda Civic in June of 2004 (when the 2005 edition was beginning to arrive). I’ve had that same car for almost ten years.
- Samsung. Some of the technology around my house has been supplied by Samsung. One of my HDTVs is manufactured by Samsung, I have a Nexus 10 tablet manufactured by Samsung, and my phone is a Samsung Galaxy Note 3.
- Google. Both the tablet and the phone I own include the Android operating system designed by Google, but more importantly, I use Google software every single day. Google controls my email, and I use Google’s search exclusively.
- Microsoft. Although I already own shares of Microsoft, I wanted to add this to my portfolio for the Throwdown. I’ve been using Microsoft’s operating systems for desktop computing since MS-DOS since the 1980s, and today, I own an Xbox 360 as well as an Xbox One.
- Canon. I am an avid photographer, and when I turned to digital single lens reflex cameras, I had to choose between Canon and Nikon. Once you start buying equipment, you generally lock yourself in with one brand or the other. My friend recommended Canon, and so I’ve been slowly acquiring Canon photography equipment over the past eight years.
Investing in these companies is not as easy as looking up the stock symbol and buying $200 of each company. First of all, only Google and Microsoft trade on an American stock exchange. So here is what I had to do for the other companies.
Honda, which is a Japanese company, has an American depository receipt (ADR). The ADR is a certificate, and the company that administers the ADR invests directly in the underlying security, which is Honda in this case. The symbol is HMC.
Samsung is a South Korean country that does not have an ADR. To represent this company, I invested in an exchange-traded fund that tracks a bucket of South Korean companies, the iShares MSCI South Korea Capped Index Fund, with the symbol EWY. Samsung is by far the fund’s biggest holding, comprising 22% of the fund’s underlying investments.
Canon, like Honda, is a Japanese company that can be traded in the United States through an ADR. The symbol for this is CAJ.
Furthermore, all purchases must be whole shares, not fractional shares. Because Google trades at over $1,000 a share, I couldn’t even buy one share if I used my entire investment for the one stock. I replaced Google with the iShares U.S. Technology ETF, with the symbol IYW. Google represents 10.47% of this ETF, but Apple represents 17.84% as of today.
I got as close to $200 with each trade as I could while using whole shares, but there is a remainder of about $120. With this remainder, I initiated an order for three shares of EUSA, the iShares index ETF that tracks the MSCI, a common index.
There’s another major drawback to this competition, and in fact, to all stock trading. Trading commissions immediately eat into your investment’s performance. With ShareBuilder, each trade costs $6.95 unless you pay a monthly fee to decrease the commission. Even though four out of the five investments increased in value since my purchase yesterday, my returns are negative because the commission fees made the cost to buy each investment significantly higher.
For example, I bought two shares of EWY (the South Korean ETF) at the price of $64.50 a share. The total cost including the commission was $135.95. That’s a 5.4% premium over what the cost would have been without the commission, which means the price of the ETF must increase at least 5.4% before I see any real profit from the investment. It’s like starting a sprint several seconds after the gun goes off.
Here’s a report showing the value of the investment as of the trades I made yesterday, not including the remainder in cash. You can see how the loss in each investment so far is identical to the commission for each trade. It’s a reminder that brokers are always the winners when it comes to trading; individual investors are often the losers.
I’ll update this report on a quarterly basis; I intend to remain with these investments and not make any further trades.
To see how the other participants are doing with the Grow Your Dough Throwdown, visit the series’ home at Good Financial Cents.
Published or updated January 1, 2014.