My 8-Year Old's Portfolio is Kicking Your Portfolio's...
The portfolio's three stocks -- Madison Square Garden (MSG) , Viacom(VIAB) and Kraft(KFT) -- outperform the SPDR Dow Jones Industrial Average ETF (DIA) , the SPDR S&P 500 Index ETF (SPY) and the PowerShares QQQ Trust (QQQ) , which tracks the Nasdaq-100 index.
Not only has the portfolio outperformed the broader market, but two stocks, MSG and KFT, hit 52-week highs on Friday. VIAB sits just shy of the 52-week high it hit on August 17.
Taken together, the stocks have returned 9.8% since the portfolio's inception. That beats the return of Bill Gross's Pimco Total Return Fund as well as Fidelity Contrafund by considerable margins.
So, what's driving this thing to such excellent performance?
We used the Peter Lynch method of investing, but -- and this is key -- we thought critically about our choices. Who knows where this will go from here, but, as it stands, together, my daughter and I made well-thought-out moves.
First, we didn't flub the "buy-what-you-know" strategy, as so many investors do.
When we started brainstorming stocks, my daughter suggested the two she knows best: Apple(AAPL) and Pandora(P) . She uses several Apple products at home and school. And ever since I introduced her to Pandora (putting in, by mistake, the wrong date of birth so she could have her own account), she has been a regular user.
While both AAPL and P would have been solid choices, regardless of their near-term underperformance relative to MSG, VIAB and KFT, we went with stocks that I think better suit a somewhat conservative portfolio with a minimum 10-year time horizon.
From a pure numbers standpoint, in the period since April 3, MSG, VIAB and KFT have outperformed both AAPL and P, which are up about 5% and down about 5% respectively, as of Friday's close. (Though, on Apple's legal punkslap of Samsung, we'll have to see how much of Friday's after-hours gains it hangs onto Monday).
KFT occupies a tried-and-true, steady-as-she-goes one-third of the portfolio. We could have gone with a whole host of consumer names here, but chose Kraft because of the dividend, my daughter's familiarity with their products, our belief that they have staying power, and my endorsement of their decision to split into two companies.
We chose not to diversify the remaining two-thirds, going with two media companies. Within the space, however, we selected two somewhat different firms.