Kiplinger Magazine sent over a press release about their new tournament - Kiplinger Stock Market Madness 2011. I pooh-poohed writing about it at first, but then realized it might hold the key to an important investing lesson - should investing be fun?
The game starts with the sweet 16 stocks out of the S&P 500 that were the top performers over the past three years. Kiplinger states that the goal is to decide which stock will help your portfolio earn more over the next three years.
The individual stocks then face off in a vote of popularity, with the winning company advancing to the next round. In early tournament play, Netflix knocked off Autozone, while Apple defeated Ford. Scores were unavailable.
Presumably the stock that wins it all will be the top performer over the next three years. Apple is clearly the tournament favorite, as it's expected to become the most valuable company on earth. Stay tuned, however, as anything can happen in March madness.
Stock Market Madness is fun
I think Kiplinger succeeded in coming up with a fun game. Heck, I'd even play if I had the time. In fact, it may be as much fun as the financial industry's The Stock Market Game, where students are taught the fun of picking a few stocks and awarding the winning portfolio performance over a few weeks or months.
Both Kiplinger and The Stock Market Game have two things in common:
1. They are fun and addictive.
2. They teach speculation (gambling) rather than investing.
The real lesson from Stock Market Madness
I have no desire to rain on anybody's fun parade, but the reality is that investing isn't a game and doing it right really isn't any fun. Diversifying by building broad index funds with low costs is clearly no fun-fest. And when stocks dive, rebalancing by buying more stocks is about as enjoyable as a root canal. I've been there, believe me, back in early 2009 when I told my wife we were buying more equities. Come to think of it, a root canal would have been less painful.
Kiplinger has some great articles, and there really is nothing wrong with having a little fun as they are trying to do with this tournament. I suspect they wouldn't advise sinking most of your portfolio in the ultimate tournament winner. But the key lesson is:
If you enjoy investing, you are doing something very wrong.
The odds are actually overwhelming that the top 16 performing S&P 500 stocks over the next three years will have very few of the 16 in this year's tournament. Try stacking the odds, as I do, by owning all US and international stocks with a total US and total International index fund.
Investing isn't fun if you're doing right, and by that I mean in a manner that will grow your nest egg. In fact, while I have no evidence, I think the expression "hurts so good" must have come from a successful investor.
Finally, check out my column last year to see what we can really learn from March Madness.