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Fool.com | The Motley Fool Community
No. of Recommendations: 5
Hi huddaman,

Thanks for your comments and questions.

I see that your investments have done outstandingly well and you are up about 2880 as of today, and that is reported about a 5% increase.

I wish! :-) Actually, I'm up, as of this evening and according to http://www.fool.com/specials/risingstars/rising-stars-jim-mu..., $319.88. That's from the table of individual purchases gain/loss column. I've invested $2,562.54, so ROIC is 12.48%.

There's actually one more purchase, Textron, that was made Friday that hasn't shown up yet for about $375 and I'm up about $5 on that, so total gain is about $325 all told and total ROIC is about 11%. Not too shabby for 2-1/2 months! But, it's early days, still. :-P


and that is reported about a 5% increase.

That's for the portfolio as a whole, including cash, using the calculation for NAV as described at http://www.fool.com/investing/small-cap/2005/07/11/computing... and http://www.fool.com/investing/small-cap/2005/07/12/keep-trac.... The cash drag is pretty significant this close to the beginning. I showed the difference in looking at it just from investments (as if it was a newsletter scorecard) and a real live portfolio including cash in this summary article for the end of 2010: http://www.fool.com/investing/general/2011/01/06/how-these-m....

Calculating total portfolio returns uses the daily closing prices times the number of shares held plus cash and dividing by the number of units the portfolio consists of. That's the NAV and is just what a mutual fund does to calculate its value and returns. New infusions of cash buy extra units at the latest NAV, so that NAV does not change with more cash coming in each month. Return since inception is just the latest NAV divided by the beginning NAV, such as $10.00 per unit, a good starting spot. Check out those articles linked above for more details. The benchmark is the S&P 500 as measured by SPY, so that's dividend adjusted. Our NAVs include dividends paid, if any, so it's appropriate.

By the time the first quarter ends, I expect to have somewhere between $5,400 and $5,700 invested out of $9,000, so the cash drag will be under 50% by that point and will continue to go down over time.


Also, what are the rules? Are you allowed to sell anything? And for how long does this list? Is this a competition? And is there a closing date?

Sixteen of us were given $5,000 at the beginning of November and we receive an additional $1,000 at the beginning of each subsequent month for a year, for a total of $17,000. We are supposed to make at least one pick and invest at least $1,000 each month. (Actually, it's one large pot of money that's tracked internally as it is doled out to different sub-pots and each person makes their investment choices. The commissions are real low at $1 each, so we don't have much friction from that. Thank goodness, because my purchases are pretty small!)

The one per month rule is so that we feel the same pressure that our newsletter advisors feel. Plus, it gives those who are following along several new ideas each month. The $1,000 per month is a reasonable amount to put to work each month for a portfolio of this size.

We have a fairly open hand on what we can buy or sell. Prior to starting this, we each had to put together an investment proposal and present it to the company's CFO and the manager running the show. We had to describe what we would buy and why, how we would handle risk, that sort of thing. We also have quarterly reviews to see how we're doing. My first such review happens to be this coming Tuesday.

My philosophy was primarily this idea of MUE which I picked up from Michael Mauboussin, and I would handle risk primarily by position sizing, following something written by Zeke Ashton. I'm targeting 2%, 4%, and 6% of initial total capital (so about $340 = 2%) for the investments, making each one a 2% starting position and adding as I see fit (as I did with Transocean and will likely do for others in the not-too-distant future). This imposes a certain discipline on my investment decisions and, so far, it's been working pretty well.

Yes it's a competition to some extent. We're a pretty competitive bunch at this company, so me being #3 our of 16 is pretty gratifying, but I'm expecting to reach #1 by summer. :-)

It also gives the company a chance to see what and how we can do outside of the constraints of the newsletters we work for (almost everyone listed works directly for one or more newsletters). I don't know what the plans are for any "winners" but we certainly want good investors to lead our newsletters, for instance.

Most importantly, it allows us to build a public-facing track record and to build a following, so that if I'm (for instance) tapped to lead a new newsletter a few years down the road, people will know who I am and say they'd love to follow along, thanks to my track record.

Finally, it gives us more content for Fool.com and gives us practice at writing, both analytical pieces and buy or sell reports. We all have to write as part of our jobs (who do you think puts together the content for the newsletters and updates? -- everyone from David and Tom on down), so this practice is certainly a good thing.

As far as I know, there's no closing date and I expect to run mine as long as the company lets me.

By the way, these ports are on top of our normal job responsibilities, but there is a lot of (ahem) synergy between what we're doing with the ports and what we're doing for work. Plus, just the work involved in researching the picks (and the also-rans) makes us better analysts and investors, which is a plus for our day jobs and a win for both us and the company.


Finally, can I nominate a new contestant?

I'm not sure. If you're thinking of Tom E (TMF1000), he probably wouldn't qualify as he is not an in-house Fool and right now I believe this is limited to the in-house analysts. However, if you want to pursue this, drop me an email (via a reply) and I'll pass your message along to someone who could answer definitively, one way or the other.

Thanks for asking your questions and giving me a chance to explain a bit more what the RSP initiative is all about. If I missed something or something I wrote generates another question or five, speak up.

Cheers,
Jim
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