One month ago today I wrote about how I would invest $2,500 if I had the money right then. I figured it would be fun to do some periodic updates on how my money would be doing in the hope that I might actually learn something about how the market works. Who knows, I might even learn something about how I could respond to fluctuations in the market without having to risk a single penny. That would be useful information indeed.
When I wrote my original post, I actually said I would probably choose between one of two choices: Washington Mutual (WM) and the T. Rowe Price Africa & Middle East Fund (TRAMX). For the sake of the experiment I will act as though I invested $2,500 in each of them. This may give me an idea of how a riskier mutual fund may compare to a riskier stock. It’s also just cool to think I have $5,000 of ‘extra’ money.
Washington Mutual (WM)
Buy Date: 1/9/2008
Buy Price: $12.34           Shares: 185.74
Month High: $21.92           Month Low: $10.73
Closing: $18.06
Growth: 46.35%
As I am sure you can tell by this chart, I would have loved to be in Wamu this month. I was checking the price of the stock several times a day, especially through last week when it grew 31.76%! I think if I had actually invested the money I would have set some sort of sell point based upon a percentage increase goal, like 75% or 80%, and would have sold my position once it hit that mark on the short term. Then I would have set a buy price at something lower than what I would have to pay in taxes for the capital gains I acquired. As far as I know, the tax on capital gains is the same as on income so I would have probably pegged this amount at 15-25% of whatever my sell price would have been. Using this scheme I would have set a sell order at $21.65. If it had gotten picked up at that price I would have bought again once the stock hit somewhere between $16.23 and $18.40. Given the way things look in the market I might have chosen the smaller number, helping me keep more of those precious capital gains. The whole scheme would have been a gamble, but I think I might have taken it.
T. Rowe Price Africa & Middle East Fund (TRAMX)
Buy Date: 1/9/2008
Buy Price: $13.46           Shares: 202.59
Month High: $13.58           Month Low: $11.18
Growth: -6.69%
I can’t believe that this fund actually lost money this month. I was thinking that over the long term TRAMX had the bigger potential for growth so that may still pan out. After all, one month is not very long term. I have no idea why this fund lost so much value so I won’t even offer any speculation about it, not even the rumor that Chuck Norris is about to create a competing fund that will totally kick TRAMX in the rear called CHUCKX. I will definitely be investing in CHUCKX once it gets underway, even if I don’t really have the money for it.
Lessons Learned
I would have been going crazy if I had bought into Wamu. I felt like I was the best stock investor ever (even though it was my first “pick”) and that I could do no wrong. I even toyed with the idea of forking over the money to buy into it even though it would have been a terrible decision - we simply don’t have the money for that level of risk right now. I also learned that I would have checked the value of the stock way too much. Way too much … I think the biggest thing I need to learn is patience and discipline when it comes to investing. I will have to develop clear goals and strategies in order to get my emotions out and my head into it. I don’t think I could handle the risk otherwise.
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Categories: Investing ~ Tags: lessons learned ~ Trackback
October 30th, 2008 at 9:40 pm
Awesome. You just lost 100% in WaMu! Good thing you are too poor to actually invest. Save yourself the effort and *be and idiot like me*. You’ll enjoy yourself more.
October 31st, 2008 at 12:20 pm
@ Matt - I don’t think being an “idiot like you” would be that good for me. What probably would have been a better investment than WaMu would have been $2500 worth of soda. At least then I could recycle the cans and get some good money back from the state.