April 18, 2006


I don't have a ton of extra cash right now, but I've always been curious about the stock market. So I'm going to run a thought experiment here. Let's say I had money to invest. How would I do it? I'll create a hypothetical portfolio with an initial stake of, say $100,000, and I'll buy seven or eight stocks. Every week for a month, I'll check back and make trades and see how I do. I have no training at all in reading the market, so I'll just pick stocks that I expect will perform well, and in companies that do things I'm interested in.

If there's one thing that my recent research into the world has taught me, it's that insurance companies and oil companies are making killings right now. Earnings drive the market, and those are two areas where I know earnings are huge.

Gasoline prices are only going to rise over the next several weeks. So we'll go big with 200 shares of the world's biggest and most profitable company, ExxonMobil Corporation (XOM), opening today at 62.49; blue chips don't get bluer than this.

I know from my own research into the market that insurers are charging sky-high premiums for malpractice coverage. A company that seems to be undervalued by the market right now is American Physicians Capital, Inc. (ACAP). ACAP opened today at 46.36; I'm getting 300 shares.

I like beer. Who doesn't? So for fun, let's invest in Boston Beer Company, the makers of Samuel Adams Beer (SAM). Today, SAM opened at 26.18. At such a low price, 500 shares is within my budget.

One of the more interesting factoids I've come across is that there are only seven rail portals across the Rocky Mountains connecting the Pacific coast with the rest of the country. Six of those portals are controlled by Union Pacific Railroad (UNP). That's got to be good. UNP opened today at 92.69. Because the price is so dear, I can only afford 100 shares.

The University of Phoenix is owned by the Apollo Group (APOL). Apollo Group just got hit with a ten million dollar fine for student recruitment practices violations. I can attest from personal experience that the business model works just fine, as long as they're allowed to keep it up. Because of the recent fine, the stock is undervalued at 53.15; it normally trades in the 57-58 range; an undervalued stock deserves a big buy, so that's 400 shares for me.

For long-term capital and risk-return, the pharmaceutical industry is probably the most interesting one out there. I've selected 200 shares of GlaxoSmithKline (GSK), opening today at 52.72.

Finally, I've got to have a "fun" stock. What could be more fun than beer? How about video games? Electronic Arts, Inc. (ERTS) is a big publisher of video games in a lot of formats and looks churnable at 54.39. I'll take 300 shares.

So, to sum up, here's TL's portfolio:

ACAP: 300 @ 46.36 ($13,908)
APOL: 400 @ 53.15 ($21,260)
ERTS: 300 @ 54.39 ($16,317)
GSK: 200 @ 52.72 ($10,544)
SAM: 500 @ 26.18 ($13,090)
UNP: 100 @ 92.69 ($9,269)
XOM: 200 @ 62.49 ($12,498)
Cash: $3,114

We'll check back in a week and see how the portfolio performs.

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