Grow Your Dough Challenge Portfolio Update: Am I an Investing Genius?

It’s only three weeks into the Grow Your Dough challenge, and I already feel like an investing genius.

Thanks to my participation in the Grow Your Dough Throwdown, I’ve been doing something I don’t normally do: Check how my investments are doing often. I’m logging into my Kapitall account at least twice a week to see how things are going.

In the normal course of things, I log into my Roth IRA account?and check to see how things are going once or twice a year. After all, Betterment is running it, and I don’t feel like I need to micromanage the situation. The situation is much the same for my emergency fund, which is mostly housed in a taxable investment account. I use an all market ETF for this account, so it’s not like I have to check to see how it’s doing.

The difference with the $1,000 challenge portfolio is that I’ve invested in five different Things, and two of them happen to be individual equities. (You can read about my investment picks for the challenge here.)

Now, three weeks in, I feel like an?investing genius. Why? Because even though the Dow is a little bit lower since the beginning of the year (but not much), my portfolio is up.

Down Jan 1 to Jan 23 2014

I’ve customized the display to show just this month, and, yes, the Dow (which is what most people consider the “stock market” even though there are only 30 companies listed) has lost a little since the beginning of the year. The S&P 500 is a little bit higher (and probably a better yardstick, if you’re measuring yourself against something), but not much:

S&P 500 Jan 1 to Jan 23

Which brings me to why I feel like an investing genius. The Dow is down, the S&P 500 is barely up, and my own portfolio, three weeks in, is up more than 11 percent. I checked my emergency fund, which is invested in the all-market fund, and it’s down on the year. So am I an investment-picking genius, or what?

Watch Out for Illusory Superiority When Your Portfolio Does Well

What I’m running into is a bit of a bias known as “illusory superiority.” This behavioral finance bias comes into play when you attribute the good things happening to you (in this case when your portfolio is doing reasonably well) mostly to the fact that you’re so full of awesome.

With illusory superiority, the idea that external factors might contribute to your success or failure doesn’t occur to you — unless you’re struggling. Then you’re still full of awesome, but all these outside things are dragging you down.?It’s totally?not your fault?your stock picks are tanking.

Even though I had a brief moment of doubt a couple weeks back, thinking that I would sell one of my individual equities because it just wasn’t?performing, overall I’ve been happy with my portfolio’s performance. Because it looks like this:

Challenge Portfolio Update

I’m beating the market!

Before I get too excited, I need to step back and acquire a little perspective. One of the problems with illusory superiority is that you develop overconfidence in your abilities, and it becomes difficult to tell when you are actually making a good decision. You might not even be able to competently realize when you are making a?poor?decision because you are so blinded by your perception of genius.

The other thing I have to recognize is that the only pick I’ve got that’s really been doing pretty well is the S&P International Dividend ETF I’m investing in. The REIT and the high-yield bond fund aren’t doing too badly, but the real winner so far is the dividend index. My two individual stock picks really just aren’t living up to what I’d hoped for. I thought AT&T looked undervalued, but so far it looks like it wasn’t, and Sysco was supposed to do awesome.

The other thing I have to remember? I’m only three weeks in.?There’s a lot of year left. Besides, other than the two individual picks, I still chose my investments with the long haul in mind. I’m not exactly concerned about winning; I’m more concerned that this becomes the basis for a long-term dividend income portfolio, complete with dividend reinvestment.

So, really, I’m not an investing genius. My portfolio’s doing well — I’m happy with it — but there’s likely volatility ahead, and it’s not like I stuffed it with a bunch of “out there” individual stock picks that could be big winners and reveal the investing genius deep inside. Instead, I’m probably an average (perhaps sub-par) investor who is really too risk averse to do anything really crazy.

What about you? Are you an investing genius?

8 thoughts on “Grow Your Dough Challenge Portfolio Update: Am I an Investing Genius?”

  1. Shane @ Financial Debauchery

    First off, congrats on the 3-week well-performing portfolio! Haha. Illusory superiority is indeed very common among investors. I’ve had my own experience of it way back. Let it get to your head and you’re sure to suffer the unwanted. It always pays to think long-term; it’s smart investing.

    1. That IS my own money! We all had to put up our own $1,000 for the challenge, which is why my portfolio is still relatively conservative 😉 Although, after I’m paid for the book I’m ghostwriting, I’m seriously thinking of taking another $1,000 and doing something truly stupid, just for fun.

  2. Hi Miranda,
    Not sure if I’m missing something here, but the screenshot shows the value of the account is up only $7.14.

    That is a Total Return of 0.7% based on the $1,000 starting value. Positive, yes but not quite 11%.

    Apparently, the software used to calculate performance for the contest is assuming you will continue to earn 0.7% every three week so it is extrapolating it to an 11% Total Return for the entire year.

    Very much a counting your chickens before they hatch method of performance calculation. The SEC would be all over any investment advisor that calculated returns like that.

    Good luck with the contest.

    1. Miranda Marquit

      I thought the math seemed funny, but didn’t really look into it. Thanks for pointing that out! Time to really pare back my expectations 🙂

  3. It’s always good to beat the market. Betterment is an excellent software and I would highly recommend it to anyone. Thanks for the in depth analysis.

  4. Seriously? 3 weeks? smells good and i think its never too late for me to try! I’ve already tried lots of investing strategies with $1,000 challenge but I still want to think positive for this.

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