Welcome, MarketWatch readers (Mad Money Machine)

[MadMoneyMachine.com]

Mad Money Machine

If you’re visiting the Mad Money Machine for the first time after reading Frank Barnako’s blog, WELCOME! The Mad Money Machine is indeed more than just a review of Jim Cramer’s picks. Check out the weekly podcast (subscribe via iTunes above right) and hear me spin the wheel as we play Guru Roulette. And I’ll have [...]

complete post here... (http://madmoneymachine.com/2006/10/11/welcome-marketwatch-readers-2/)

[Blackark]

The portfolio smackdown seems broken and arbitrary to me.

I know you have a bias toward etf's and index funds, and so does your sponsor. So why should we trust you to make the selections for the select mad money portfolio.

Why do the etf's not have any capital gains tax taken into consideration (either long term or short term), is it because you never sell them and never lock in any gains that you are showing for the portfolio?

Do you see why I have an issue with this? You actively trade your selct cramer stocks but you dont actively trade your etf's.

I think you should have to lock in gains or losses every month or every quarter perhaps to be fair, I mean this thing looks as arbitrary as anything out there. I could just as easily say my Mad Money portfolio trades in my IRA so therefore no Capital gains tax.

Perhaps you need an independent body to select your select cramer picks. I don't know, the whole thing looks disingenuous and broken to me.

It conveniently promotes your point of view in a somewhat dishonest fashion.

With that said, I do like the contrast that you put forth and I have been a long time listener of your show. Keep doing the show, we'll be listening.

[Mad Money Machine]

Thanks for bringing that up. Here's where I was coming from...

When I first started the Portfolio Smackdown, my hidden agenda was to show how picking Cramer's stocks would BEAT the boring ETF index funds. I was pretty sure that the stocks he was picking would blow the ETFs away. In fact, if you look at the chart, within the first two weeks the Cramer portfolio looked as if it was going to run away with the thing and make the whole exercise a joke.

As to the trading part, yes I do keep track of the capital gains taxes paid, but since the Cramer portfolio is a net negative, there would be no taxes there. I keep both, the pre-tax and after-tax percentages, mainly as a reminder that short-term trading is a horrible thing to try to overcome in a taxable account.

I don't actively trade the ETFs because the philosophy of that account is "buy-and-hold." That is part of the comparison. Can buy-and-hold beat active trading?

I would very very much welcome an independent body to help select the Cramer picks! In fact, if you listen to my current show, I am asking for people to do that very thing! (Oh, I just now read that you said you do listen.)

Well anyway, I guess the original purpose of the Portfolio Smackdown was not to promote ETFs since that really wasn't at the time my point of view. Now that I see that it really works, yes it is my point of view. :-)

I've wondered if anyone would accuse me of trying to purposefully pick losing stocks to make the Cramer Portfolio look back. Wow, if I could really do that then I should SHORT the stocks and make some real money!

In the end, it probably is broken and arbitrary. I really don't claim that it is some sort of scientific proof of anything or whatever. It would be great if we had 1000 people each taking a swipe at constructing Cramer portfolios and see how many winners we can get. Perhaps that would make it more scientific?

I love the feedback. Thanks for giving me the opportunity to spout!

--Paul

[Blackark]

Hey man,
What a great reply, destroys all the suspicions I might have had about the smackdown. Applying philosophies to the various portfolios is a perfectly valid way to go. If I owned ETF's I would probably buy them on Jan 1 and hold them too, just to match the percentages to what I read in the paper all year long.

I just might set up a faux select cramer portfolio and actively trade it, see what I come up with. Who knows I might come to the same conclusion and start buying ETF's in my brokerage. I have a ton of websites so I will let you know the URL when I start it.

I have also come to find that I needed more than one Roth IRA account with different brokers. Fidelity is great for buying funds but terrible for buying individual stocks, base commission is 40 dollars round trip which is murder on cost basis. From what I understand the G man looks at all your IRA accounts as one big IRA, so as long as the total annual contribution is not exceeded between all the accounts together, this might be one approach others can consider as well.