A.I.M. Users Bulletin Board

[SFSecurity]

Hi Gang, The book that was mentioned recently, "How A Second Grader Beats Wall Street," is interesting but it's a bit pounding the skull with the same statements, rephrased somewhat, again and again.

However, it has some merit. If one gets in near the bottom, 2/6/2009, his main position, VTSMX, gets slightly less that the S&P 500 Index (^GSPC on Yahoo), however if you were to get in from the top on 10/1/2007, you'd do better than the index, 5.86% for ^GSPC versus 6.74% for VTSMX. Odd. I don't understand why so I'll have to think about it some more. Of course the issue may be that I'm only comparing the US stock to the S&P Index and not including the International, VGTSX, and the bond fund, VBMFX. Combining the three may make the difference.

But then I came upon a significant error in Chapter 6, Illustration 6.3. Truly bizarre error given that he touts himself a a math wiz.

He states that splitting your investment into two countervailing investments where one goes up 30% in a good year and down 10% in a bad year, with the other the inverse, one would get 10% per year return. It didn't sound right soI decided to test it and found that, yeah, in the first year one gets 10% overall, BUT in the second year one gets only 6.36%, and it alternates this way every other year.

	Rainy Fund	Sunny Fund	Sum	 
 Start	1000		1000		2000	 
 Rain	1300		900		2200	  10.00% 
 Sun	1170		1170		2340	  6.36% 
 Rain	1521		1053		2574	  10.00% 
 Sun	1368.9		1368.9		2737.8	  6.36% 
 Rain	1779.57		1232.01		3011.58	  10.00% 
 Sun	1601.61		1601.613	3203.2	  6.36% 
 Rain	2082.099	1441.451	3523.54	  10.00% 
 Sun	1873.887	1873.887	747.774	  6.36% 
 Rain	2436.053	1686.498	4122.551  10.00% 
 Sun	2192.448	2192.448        4384.896  6.36%

for an overall result of 8.165%, certainly not bad but it makes me hesitate to take everything else he says without a few grains of salt.