Mad Money Machine

Lazy Portfolio Smackdown 2008 Winners Announced

I have updated the Lazy Portfolio Smackdown page to show the preliminary results for 2008. Note that after a few weeks the results will be updated once again after Yahoo! gets their dividend data included in the historical quotes for each fund. I do not think that the dividend data will alter the results though.

The game started one year ago. I asked people to create a buy and hold portfolio of index funds or ETFs that would exhibit the best return-to-risk ratio in 2008. This would be measured by “top-leftedness” on a plot of Return on the Y axis and Standard Deviation on the X axis. For positive returns, the Sharpe Ratio accomplishes this nicely. But when all returns are negative, the Sharpe Ratio gets screwy (a technical term) and I had to reset 0%  to be at -50% to make it work. Even when all returns are negative, we still want to be top left on the chart.

Winners were to be selected from each of three risk bands: 0% to 8%, 8% to 16%, and then 16%+. Funny how the game worked out. Last year was a RISKY year. Only one person had a portfolio with a Standard Deviation of less than 8%. Congratulations Cosmo, you had a STDEV of 3.5% and a return of 5.1% with your portfolio holding a single fund: the Vanguard Short-Term Bond Index (VBISX). You are the winner of Index Funds: The 12-Step Program for Active Investors by Mark Hebner. And if you actually had your net worth invested in that portfolio, you had a great 2008.

Next up, the medium risk band. As it turned out, nobody had a positive return here, as you can see in the following chart. Which one is top left? The one who lost the least amount is Ariel with a return of -12.6% and a STDEV of 8.2%. Ariel also put the entire net worth in one fund: Vanguard Wellesley Income Adm (VWIAX). Congratulations Ariel, you too are the winner of Index Funds: The 12-Step Program for Active Investors by Mark Hebner. 

Finally the guys who took great risk. This one is a littly silly because here you can gamble on something extremely risky and come out the winner if your number comes up. I should have limited it to something reasonable like 25% or something. Nonetheless, the winner is mudfud who invested in one fund: the China Bear 2X Fund (which was closed on November 14th by the way). Now who in their right mind would really put 100% of their portfolio in this fund? That wasn’t the idea behind this game. Still, if you could handle a risk of 56.1%!!!! OUCH!!! then you got a return of 42.4% for your gamble. Congratulations mudfud, you too are the winner of Index Funds: The 12-Step Program for Active Investors by Mark Hebner.

You can see all of the other entries at the Lazy Portfolio Smackdown page and you can see the portfolios of the so-called “Professionals” — those who make a living recommending portfolios to folks like us.

I’ll be talking more about the results on the Mad Money Machine podcast. Please load it into your iTunes or visit MadMoneyMachine.com to listen on your computer.