It’s Hard To Quit When You’re Ahead

It’s very hard to quit when you’re ahead. That’s the first lesson I’ve learnt when playing the iShares Fund Frenzy challenge, which is essentially a football dream team but with single country exchange traded funds.

I checked my first week’s scores with almost as much excitement as a 40 percent off sale at Topshop. Result: 34.18 points. Wow, I thought, suddenly regretting all those Topshop purchases – it’s amazing to think that if I had invested €1000, I would have already ended up with - well, more than that.

Word of wanring - the scores are calculated on the basis of each ETF's weekly net asset value percentage change, not on direct returns, and five points are added to a team to avoid negative percentage points. The captain ETF also gets double points.

Individual fund choices worked out as follows: Chinese large caps returned 4.05, Italian equities hobbled a bit at 3.16, Spanish government bonds edged a bit higher at 5.37 and US equities retained steady growth at 4.95.

Here is the wildcard. Russian equities delivered 12.6 points, according the game's rules, seriously boosting my overall score. And that was despite Austrian transgender Conchita Wurst winning the Eurovision.

I think this experiment is drilling something into me – the second lesson of the day – that it’s impossible to predict the market, and all we can do is make an informed bet on how things will turn out.

Time to make some substitutes. As promised, I enlisted the help of ETF.com analyst Spencer Bogart to help me with my choices yesterday evening as we entered the second week of the competition.

He recommended that I sub out of Chinese equities, Russian equities and Spanish government bonds – all my highest winners – and he gave me a three-strong list of good, solid reasons.

1. “China – a lot of recent data suggests the economy is slowing faster than expected, the so-called "hard landing". That said, who doesn’t want exposure to world’s largest growing economy?
2. Spain – you could say that trade has run its course. Look at where bond yields have come from and gone to, and without seriously improving fundamentals, the rally for Spain could be toast.
3. Russia – while it enjoyed a nice bounce-back over the previous week, tensions in Ukraine are still escalating and you could say you don't want to hold that kind of headline macroeconomic risk in your portfolio.”

I pondered this sound advice long and hard. I responded with three points in return.

1. I’m still young (ish) and I’ve been told I can spare the time and the cash to take a higher risk, as long as I understand what I’m getting into.
2. If I was playing for medium term gains, I certainly wouldn’t be opting for Russian equities.
3. The old adage from Warren Buffett comes to mind: be fearful when others are greedy and greedy when others are fearful e.g. buy low and sell high. I’m going to hope that statement is overrated. After all, he is the one who instructed his wife to invest the majority of her assets in an S&P 500 tracker.

I just hope investors in Russian equities don’t start to take profits before the competition is over.

Yes, that’s right. Despite professional advice, I’ve not made any player substitutes. I’ve knowingly fallen into the classic amateur investor trap of sticking with my winners.

I asked Spencer for his opinion. “It’s such a short time horizon that it’s anybody’s guess,” he said kindly.

But the “Kaizer Chieftains” have guessed it pretty well thus far – they are in the top spot with 49.32. I’ve got a bit to catch up with them, being in position number 327 myself.

Some say it’s easy to get in and out of ETFs, so have some fun with it while you still can.