90% of this blog content so far has been reviews of suspicious P2P platforms and making fun of bloggers, who promote P2P scams and end up losing money themselves. And to be honest - it is quite easy to be critical of others, but much harder - to publicly share your own portfolio.

So this week I am starting a new experiment that will allow others to laugh at my investment decisions as well. I will try to create an investment portfolio from scratch and benchmark it against 2 metrics:

S&P 500 - a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States
Berkshire Hathaway - a holding company for a multitude of businesses, run by one of the most famous investors in the world - Warren Buffett

According to Investopedia, from 1965 to 2018, the S&P 500’s annualized gain was 10%, while Berkshire Hathaway’s stock generated an annualized 20.3%. Can I do better? Probably not, but I will try anyway.

What is a reasonable way to invest?

The common view is that a retail investor should not try to time the market or try to manually pick stocks, and instead a better idea is to invest in a low-cost broad market index and use Dollar-Cost Averaging - buy regardless of the asset's price and at regular intervals.

The most popular stock market index is S&P 500, so it is often used as benchmark to understand - if a different, active investment strategy can outperform it. If not, then why pay more in fees or spend more time on research? Just buy $VOO each month.

There are many reasons why to invest in S&P 500:

Historic annual return of about 10%
Small fees, which can make big impact over time on overall return
Easily automated, just buy one ETF each month for your target amount
Lower volatility & risk when compared to individual stock picks
Good diversification among 500 US companies
Recommended by Warren Buffett and other experts
No need to spend time on research
Even some hedge fund managers cannot outperform S&P 500

What will be my investment strategy?

Financial markets are extremely hard to predict in short term. One of the best examples of a disconnect between economy and stock market can be seen below:

This situation got me into trouble as well - I did some option gambling with idea that markets would crash, the first trades did OK, but after that - all red.

So my portfolio will be built with the already mentioned Dollar-Cost Averaging approach - each month I will invest $2000 and buy the assets I am interested in regardless of the prices.

In a way I will be creating my own version of Ray Dalio’s All Weather Portfolio - in theory it should perform in any market conditions. In practice? Let’s wait & see.

50% will be invested in stocks to get upside of a productive asset:

10% will be invested in $VOO (Vanguard 500 Index Fund)
10% will be invested in $BRK.B (Berkshire Hathaway Inc. Class B)
10% will be invested in ETFs
10% will be invested in big companies, $100B+ market cap
10% will be invested in small/medium companies, <$100B market cap

50% will be invested in Bitcoin and Gold to protect against inflation:

10% will be invested in $GLD (ETF to invest in physical gold)
40% will be invested in Bitcoin

As you can see, 70% of my investment allocation is “fixed“ - each month I will invest in $VOO, $BRK.B, $GLD and Bitcoin, the only thing for me to decide: I have to pick 1 ETF, 1 big company, 1 small/medium company to invest the remaining 30%.

I still have not decided, if I should create some rules about selling or rebalancing, but in the beginning I plan to only buy & hold, and follow predefined allocations - so no shorting, no leverage, no CFDs, no options, no day trading, no gambling.

What is the goal?

To beat the market or to conclude, that for some reason I am not able to do it.

Each month I will compare performance of:

$VOO (Vanguard 500 Index Fund)
$BRK.B (Berkshire Hathaway Inc. Class B)
My overall portfolio

And will look also at these parts separately:

My ETF selection
My big company selection
My small/medium company selection
My Gold position
My Bitcoin position

Is this real?

Yes, you can follow and verify all my trades here: etoro.com/people/kristapsmors

The current portfolio looks like this:

As you can see, my first 3 selections were following:

ETF: SPDR S&P Oil & Gas Exploration & Production ETF, $XOP
Big company: Royal Dutch Shell plc ADR Class B, $RDS.B
Small/medium company: Carnival Corp, $CCL

Why did I chose eToro for this?

I can set my profile as public and anyone can verify what I am saying/doing
I can buy exposure to Bitcoin + stocks in one place
No fees for my ETF & stock picks, 0.75% fee for Bitcoin
I can buy fractional shares, so I can split my investment exactly as needed

What are the downsides of eToro?

Their business is selling CFDs with high fees (and read their warning: 75% of retail investor accounts lose money when trading CFDs with eToro)
Limited selection of stocks, ETFs & other instruments when compared to Interactive Brokers. For example, I was not able to find $SSL or $IXC
They hide fees when you buy Bitcoin
You cannot buy “real“ Bitcoin - it is not possible to withdraw it to your own wallet
There is a $5 fee for withdrawals

In short - it looks like a good platform for this kind of experiment, but if the portfolio grows seriously over time, then it would make sense to do it in a proper way:

Buying stocks from Interactive Brokers
Buying Bitcoin from Kraken (0.25% fee), moving it outside of exchange
Buying physical gold, not “paper gold“ to avoid situations like these:
Jim Rickards @JamesGRickards
Where did GLD get the "gold" needed to back up its ETF? Well, they "borrowed" it from HSBC and HSBC "borrowed" it from the Bank of England, which still has custody. Got it? It's paper gold supporting paper gold behind a paper gold share. Read all about it: Amid London gold turmoil, HSBC taps Bank of England for GLD gold barsSince April, HSBC has been channelling gold bars stored in the Bank of England vaults into the world’s largest gold-backed ETF, the SPDR Gold Trust (GLD).bullionstar.com
May 14th 2020
498 Retweets1,491 Likes

Anyway, if anyone considers joining eToro - be very careful. Avoid buying anything that has leverage or CFD in the description, otherwise you will probably join their 75% loser club.

How long will this last?

I hope at least 1 year, ideally - several, but that depends a lot on performance and my priorities - if I fail big time or need money for something else, might end it sooner. Also - depends on feedback and if anyone finds this interesting?

Key takeaways

It is very difficult to beat the average market return
The reasonable way to invest: use DCA & buy $VOO
If you sign up in eToro or similar platforms, avoid CFDs

P.S. Join “High-risk investments“ Telegram group for an informal discussion.

Kristaps Mors

Can I beat S&P 500 or Warren Buffett?