High-roller investors beat safety-conscious folks in '98
High-roller investors beat safety-conscious
folks in '98
by Robert K. Heady
Bank Rate Monitor
Who made out best with their investments in 1998? Here's one answer:
In
our neighborhood there's a strange bunch of guys who call themselves the
Once-a-Year Club. They meet just before Christmas at the local saloon and
try to claim bragging rights to who made the smartest financial moves since
last January. Then they get swept up in the holiday cheer and the winner
buys, just like in tennis.
Each
of these money mavens wears a nickname, voted by the group based on his
or her peculiar investment habits. On one extreme, there's High Roller Harry,
who chases only Fortune 500 company stocks. Then there's Nervous Nellie,
who wouldn't abandon low-paying FDIC-insured bank CDs if you gave her a
free Trump casino on her birthday.
This
week, as the characters sat around the fire, Harry piped up and said, "Sorry,
guys, I guess I win. The average stock in the Standard & Poor's 500
Index is up 24 percent for the year. That's a gain of $2,400 for every 10
thousand bucks I invested.
"Plus,"
said Harry, rubbing it in, "the Dow Jones average is ending up nearly
14.5 percent ahead. But the S&P performance is what definitely gets
me the prize."
"Want
to bet?" It was Middle-of-the-Road Louie butting in. He got his name
by always going with stocks of small- to medium-size companies listed on
the Nasdaq Exchange. "Those investments turned a magic average 35 percent
gain for the year3,500 big claims," says Louie. So Louie indeed was
the new champ, and he was going to pick up the night's bar tab.
Louie's
market selections even nosed out those of Ina the Index Lady. Her favorite,
the Lipper Growth Fund Index, showed a 21.32 percent increase for 1998,
or an increase of $2,132 on a $10,000 buy.
For
all of '98, only two of the other club members' investment picks, as it
turned out, gained by 10 percent or more:
Benny
the Bondsman earned 12.85 percent by sticking with Lehman Brothers Long
Term Bonds, a $1,285 gain. Benny made less money on Treasury bonds (up by
8.46 percent), Merrill Lynch Corporate Bonds (an 8.24 percent rise) and
Lehman Treasury Bonds (up 4.5 percent).
Another
choice by High Roller Harry, Diversified U.S. Stock Funds, increased by
exactly 10 percent. But that still looked a little ho-hum compared with
his S&P 500 and Dow Jones investments.
The
Once-a-Year group lost no time telling Harry and Louie they must be wearing
lucky charm bracelets. As of last August, when the Russian economy came
unglued and U.S. stocks took a nose-dive, stocks were earning zilch for
the year. The next five months with a roaring bull market is what saved
their skins, they were reminded.
As
usual, low-end gains for '98 were made by club members who went for safety
instead of risk, which tells you where the action has been so far. (Example:
Before this year's tally, Nasdaq had doubled in value over the previous
three years, while bank CDs barley gained.)
Government
Gus, who puts his money into U.S. securities, earned 5.24 percent on the
one-year Treasuries he bought last January. But he made only 4 percent on
three-month T-bills he kept rolling over.
Nervous
Nellie's six-month CD yields didn't fare much better, up by 4.4 percent
over the year, while her one-year CDs did a little better at 5.15 percent.
The
loser, for the second year in a row, was Go for the Gold Griswold, who subscribes
to the Y2K Doomsday theory and plows all his cash into gold. this year Griswold
lost 4.6 percent, or $460, on his 10 grand and wound up with $9,540.
The
bottom line at the pub meeting was this: On a $10,000 investment, the difference
between Middle of the Road Louie's top pick and Nervous Nellie's worst selection
was $3,060.
In
fact, if you go back a year ago to the club's 1997 holiday meeting, the
results were eerily familiar. Stocks and mutual funds won the race, with
the S&P 500 up by 25 percent, the Lipper Growth Fund Index ahead by
24 percent and the Dow advancing by 18 percent.
The
question is, how long can High Roller Harry and Middle of the Road Louie
keep up their winning style? For a minute in '98, it looked like they were
both kaput. Will Nervous Nellie always be the bridesmaid at this affair,
or will she one day be able to laugh and say, "I told you so"?
"We're
not exactly the Beardstown Ladies Investment Club," said Nellie, "but
we make it exciting for the neighborhood."
Editor's
Note: Robert K. Heady is the founding publisher
of Bank Rate Monitor and is the co-author of the book, "The Complete
Idiot's Guide to Managing Your Money." You can write to him in
care of the Bull & Bear or send e-mail to jrnl8888@aol.com.
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