I Failed - How Much Money I Lost

What's up here, guys? It's Grams. You know what's easier than making money? Losing money.

And unfortunately, this video is a prime example of doing exactly that because I messed up. See, two years ago, during the pandemic, where every redditor on Wall Street Bets was basically printing money from their mother's basement, I wanted to make the point that investing had become so easy that even a blindfolded monkey could do it. So I got a monkey.

Okay, fine. That was clickbait. I didn't actually get a monkey since Ramsay is scared of anything that's not a laser pointer. But I was able to enlist the help of Monkey Boo, who agreed to pick 10 random stocks from the S&P 500. And once that was done, I invested a hundred thousand dollars of my own money to prove that even the dumbest investment strategies make money, which to my amazement, it worked.

One year after publishing the list of Monkey-picked stocks back in December of 2020, I proudly reported that my monkey stocks outperformed the S&P 500. They beat both Kathy Wood and Warren Buffett, and my portfolio boasted more than a 40% return with absolutely no skill whatsoever—unless you call randomly generating stocks picked by a monkey a skill, in which case call me the next Charlie Munger.

Anyway, by all measures, the experiment was a success. I made forty thousand dollars through dumb luck—I mean a carefully crafted and proprietary investment strategy—and was well on my way to take over the world. So I thought to myself, "Let's see if we could do this again." Uh, no. It didn't work. It went horribly wrong.

Here's the thing: no matter how much you want to believe a stock market Tooth Fairy exists, the longer you invest, the more impossible it is to beat the market. Which, if you're just tuning in for the first time, basically means how likely you are to get a return above the overall average. And despite that seeming like a really, really easy task—especially if you have a stock-picking monkey—the reality is pretty much everybody fails.

In fact, a report earlier this year found that 80 percent of active fund managers are falling behind. Ninety-five percent of hedge funds fail to beat the market over a 15-year period, and the more time that goes on, the worse your odds actually get. For example, it was found that professional fund managers have a 25% chance of beating the market in any given year, which is basically the equivalent to flipping a coin heads twice. But they only have a 6% chance of doing that successfully two years in a row, and the longer they keep trying, the worse they're statistically likely to do.

Now if you're thinking to yourself, "Those are really, really bad numbers. It can't possibly get any worse than that," keep in mind these are the professionals. These are the pinnacle of fund managers. And if you're an average, everyday investor, it gets substantially worse. Like JP Morgan found that over 20 years, the average mom and pop investor managed to make just a 2.1% return on their money, which wasn't even able to keep up with inflation. So over 20 years, the average investor just straight up loses.

And the reason for that is bad timing. See, the average investor has a tendency to buy high after stocks have already gone up, and then they sell low once stocks have already gone down, which is pretty much the exact opposite of what they're supposed to do. And it probably goes something like this: "Yeah, Tesla stock is too risky! It is the most shorted stock on the market. I'm not gonna buy it! How is the stock going up? It's definitely going back down. I'm glad I didn't buy this one. Well, geez, I was an idiot for listening to Business Insider. What was I thinking? I'm gonna buy it now so I'm not gonna miss out!"

"Hey, Carl, yeah, I'm gonna put that down payment on the yacht. Oh, I know! Aren't you glad I told you to buy Tesla stock? Geesh, what color is your Lambo gonna be? Hey, Carl, any buys for that yacht yet? I've got to sell my Tesla stock now at a loss."

"Yeah, I heard your Lambo got repossessed. I had no idea he was gonna buy Twitter like that. What was he thinking?"

Okay, that might have been a little dramatic, but you get my point. Most people buy into stocks with a lot of excitement and then subsequently sell under a lot of fear. And when the average person only holds on to those investments for four years, they don't give their money a long enough time to recover before they want to move into something else with the hopes of that making them rich.

Thankfully, though, my monkey does not do that. And with a 40% return in the first year, I thought to myself, "What a wonderful experiment that I could try again!" But that went horribly, horribly wrong.

Like, I know this sounds absurd, but animals actually have a really great track record at making profitable investments. For instance, a fish's stock picks were simulated over a thousand times and beat the market by an average of 14.5% over three years. There's also a cat that beat the market by 8%, a monkey named Adam who beat Jim Cramer, a chimpanzee who beat 94% of Russian bankers, and even a crypto trading hamster who beat Warren Buffett. Plus, how could we ever forget about Michael Reeves' goldfish, who outperformed WallStreetBets, which is a weird flex but okay.

Anyway, here's why animals happen to be such good investors, and all of it boils down to how these strategies were designed. See, the thing is, by randomly selecting 30 stocks out of the top thousand companies and buying them all in equal proportion, that increases the likelihood that such a portfolio would contain smaller stocks which have the likelihood for higher growth. And because animals didn't get emotional and panic sell because someone on Reddit called their investment stupid, that led to an outperformance of the market each and every year.

As proof of this, between 1980 and 2015, smaller stocks returned 11.24% on average, while large stocks returned 8%. That's why this strategy has done really, really well and how my monkey was able to make 40% in the first year. However, if this sounds too good to be true, it is.

After all, this worked more than 50% of the time on a large scale, every fund manager would turn their offices into a fully functional zoo. So why did my monkey portfolio end up going so horribly, horribly wrong? The reason is that I'm dumb.

Okay, no, but seriously, I was dumb because I didn't cash out after the initial experiment was over. Because there's one thing I forgot to talk about, and that would be risk. For example, if we compare the top 1,000 growth companies with that of the top 1,000 value companies, we could see that nearly every price movement in the value category is magnified by at least 20 to 50%. So every market peak is higher and every market drop is lower.

Oh boy, we see a drop this year! Look, in hindsight, I should have taken my profits, sold the entire portfolio after the first year, and rolled that hundred thousand dollars over into the next one. But I thought to myself, "This is YouTube! I'll be able to get even more content by holding on to the portfolio and then investing another hundred thousand dollars into 10 more stocks picked by a monkey! What could possibly go wrong?"

Everything. Let's talk about the initial portfolio that had grown to a hundred and forty thousand dollars. The last time I talked about this was back in December of 2021, and since then, the market has plummeted.

Like, remember when I said that if the market goes down, this would do twice as bad? Well, it did! Even though the S&P 500 is down 16% year-to-date, my monkey portfolio is down 37% from the peak. Now admittedly, a few of the stocks in that first portfolio did wind up doing fairly well, like Ford, up almost 60%, Public Trash Services up 50%, and Invitation Homes up almost 20%. But others, like Netflix, have fallen 40%, and Align Technology is down 65%.

While others, like In L America, IHS Limited, and Cerner Corporation, were bought out, so that remaining amount just sat in the portfolio in cash without being reinvested. All in all, I should have cashed out after waiting a year, but I decided to double down and invest another hundred thousand dollars into doing it again.

So how did that do? It was also bad. In my second 100,000 monkey competition that was posted back in December of 2021, I bought 10 more stocks for ten thousand dollars each, and I'm down a total of 17%. In fact, only two stocks are green for the entire year, and that would be Lamb Weston Holding Inc, up almost 40%, and the JP Smucker Company, up 15%.

Besides that, everything else is down, with one company even losing 45% of its value. Of course, in all fairness, December of 2021 was the top of the market, and the S&P 500 is down 16% year-to-date, so this portfolio is not doing all that bad, considering, well, it's picked by a monkey.

But either way, it appears as though our suspicions are coming true: a monkey cannot beat the market, although it did come incredibly close. That's why, as fun as it is to risk two hundred thousand dollars of my own money for the purpose of investing in randomly picked monkey stocks to prove a point here on YouTube, after two years, I have to say, even though the highs are higher, the lows are lower.

And when you account for all the risks associated with letting a monkey pick the next Tesla stock, it's probably better just to ride the entire market as a whole with an index fund. Now sure, you're probably going to miss out on all the euphoric rally associated with the next bull market, where teenagers are giving investment advice on TikTok—like, anyone remember Virgin Galactic?

But in times like this, you're also not going to lose more than absolutely necessary to stay invested, and generally speaking, this is going to be the safest, most profitable way for the majority of people to invest. On top of that, I know I've said this part a million times, but sometimes repetition is good. If you want the highest chance of making the most amount of money possible: number one, don't use a monkey, and number two, don't try to find the perfect time to buy in.

Instead, nearly every single study out there shows you that you should not be trying to time the market, and it's much better just to invest consistently as usual, regardless of the circumstances. Even Charles Schwab found the cost of waiting for the perfect moment to invest typically exceeds the benefit of even perfect market timing, with the chart showing that investing immediately generally yields the strongest returns.

For myself, I've applied this exact same strategy for now over 10 years. Even when the market was hitting brand new all-time highs in 2013, '14, '15, '16, '17, up until now, I've kept maxing out my retirement accounts, investing in index funds as usual, and keeping the same momentum—no monkey required.

And finally, as far as what I'm doing about all of this monkey business in 2023, to be honest, I'm a bit undecided. On the one hand, this is the perfect opportunity to sell my losing positions, use that to offset my gains within other accounts, and effectively rebalance my portfolio without having to pay any tax whatsoever—otherwise, what's known as tax loss harvesting.

This also allows me to have what's called a stepped-up tax base to sell my long-term investments. And if that sounds confusing, here's all you need to know: as my super professional example here, stock A has a cost basis of ten thousand dollars and it's now worth five thousand dollars. Stock B has a cost basis of ten thousand dollars and it's now worth 15—18 thousand dollars.

In this example, if I sold stock B to lock in the profit, I would have to pay tax on the additional five thousand dollars worth of gains. However, in this case, I could sell stock A for a five thousand dollar loss, use that to offset the five thousand dollar gain, and then I'd be able to buy back stock B immediately after and raise my tax basis from ten thousand dollars to now fifteen thousand dollars.

Now, the downside to doing that is that I would have to wait 30 days before I'm able to buy back in stock A to avoid what's called the wash sale rule, which basically says you can't sell a losing stock, take the write-off, and then buy back in immediately afterwards. But from a tax accounting perspective, this one makes a lot of sense because I have no desire to buy back into these monkey stocks.

But, on the other hand, I would also be open to holding on to these a little bit longer just to see how they play out. After all, this entire investment was done for the sake of a YouTube experiment, so keeping it going a little bit longer is gonna give us some more data to work with.

If you have any suggestions either way, I'm open to hearing it out, and I'm open to taking whatever the majority of comments go vote for. Otherwise, I'm going to take the responsible adult option to tax loss harvest and then reinvest those proceeds back into buying more of the S&P 500 Index Fund.

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