Last year, my dad and I watched a show called Mad Money with a guy named Cramer. I thought Cramer was short tempered and a bit crazy. Because he was yelling so much, I didn’t even understand what he was saying except that he told every caller that they were looking at things the wrong way. I did like the sound effects. -Kevin Roth (How a Second Grader Beats Wall Street by Allan Roth)

I recently had the pleasure of reading the book How a Second Grader Beats Wall Street. My only regret is that I did not read this book sooner! It was an entertaining and educational read that I was unable to put down. I am in the process of setting up this portfolio for my own purposes as we speak with a slight variation due to current holdings.  The 2nd grader portfolio is actually one of eight lazy portfolios that is tracked on MarketWatch’s ( by Paul Farrell.

The straight and dirty is that it consists of three holdings with the following allocations (obviously allocation can (AND SHOULD) be modified to his/her needs):

  • Vanguard Total Stock Market Index – 60%
  • Vanguard Total International Stock Market Index – 30%
  • Vanguard Total Bond Market Index – 10%

My modification will look like this due to not wanting to sell all of my VSIAX in my ROTH:

  • VSIAX – 19.8% (Held in Roth)
  • Van Total Bond –  9.4% (Held in Roth, learned bonds better in tax exempt from this book actually)
  • Van Total Stock – 37.7% (taxable)
  • Van Total Int – 33% (taxable)

I will most likely use the rest of my 2017 Roth contribution to bring up the Bond percentage.

Why am I doing this?

This book was the final ‘Aha moment’ for me. In my recent post I talked about my picture perfect plan of selling SJM after earnings to then put the money into NAT. It sounded so great in my head. However, SJM came with downward guidance and actually dropped on Friday from 137.82 to a low of 131.42. I was disappointed. I was thinking to myself that I will still hold because I think it’s a quality company and still was in at a decent entry point (126ish). After the 3 day weekend, SJM took off to $142 though! You may be thinking, “JT, what are you complaining about? You should be happy?” Well, reading this book helped me realize that I am playing with fire because I do not have a firm grasp of what is going on.

I will never be the Oracle of Omaha

It’s crazy to think how easily it is to be seduced by a little early success in the markets. It would be like me playing a pick up game of basketball, hitting a few threes, and then thinking I am the next Steph Curry. However, that is what happens far too often with investing. A little success in investing can make you think you are the next Buffett.  I think this has a lot to do with ease of access to the markets. I can open a brokerage account quicker than I can check out at the grocery store (yes I still use the grocery store! I have to do my part to help WMT, TGT, KR).

I think one of my biggest downfalls that would come with using individual stocks would come from my bias of anchoring (talked about in the book). This is my tendency to become fixed on my entry point in a stock. If the stock goes up, I tend to think it is ‘over valued’ because the price is higher than what I originally paid. If the stock goes lower, I tend to think it is ‘under valued’, and that I should buy more. This is a very dangerous thing! For every stock that someone could show that ‘dollar cost averaging’ (DCA) worked out for them by buying more and more of the stock as the price dropped, I could counter with one that didn’t work out. So how do I know what to do? Should I buy more even though the price went up? This is very smart in some instances. Should I buy more as the price drops? This is very smart in some instances. Should I sell for a loss when the price drops? This is very smart in some instances.

The bottom line is that I have no idea! Zero.

I am surprised that I have lasted this long without blowing up, however, most credit probably goes to the bull market that has been rampaging on the past few years. Will it continue? I have no idea.


I have noticed a common theme from articles I have read on Seeking Alpha and over on Bogle Head Forums. The people who end up successful are those that put the money in for the long haul, leave it alone, and let it work its magic. I have read numerous accounts from older (wiser?) folk that are happy they invested and left it alone. They are good to go in the end game. I can count the number of times I have read people who ‘made it’ off of a handful of ‘smart’ trades. That would be a big goose egg.  If you do read some, I would wager they are trying to get you to sign up for a subscription. I’d place money on it. I like my chances on that bet.  🙂

You can throw names at me like Buffett, Mohnish Pabrai, Bill Miller, Guy Spier, etc…I have realized I am not in that league. They are the Michael Jordans. I will stick to my weekend warrior duties!

I will leave you with this little nugget towards the end of the book:

“My advice is to think like a second grader and remember the SECOND acronym”

  • “Simple” I would say can a 2nd grader understand it. However, I think that is an insult to some 2nd graders because a lot of adults don’t get it either. Even the ‘smart’ ones. Whatever that means. I myself didn’t get it and am just starting to learn…mainly after some short term tax gains from trading. Fees and taxes…fees and taxes
  • “Emotionless” Avoid the media hype. Easier said than done of course but owning the whole market w/ some bonds can make it easier
  • “Costs matter” As the book adequately explains 10-2=8. If you keep fees as low as possible and try to maximize tax efficiency, then you have a good chance of beating wall st. Actually better than a good chance!
  • “Obvious” Does it smell right? If you get a lot of fancy talk then just run or say let me ask my parents. I really want to use the let me ask my parents line!
  • “Nasty” Run from the Wall St sales tactics. Moving to an igloo and/or taking a hatchet to the tele are two suggestions I came up with. Maybe just not having stocktwits on your phone…That too 🙂
  • “Diversification” Own the whole market. Also, having low fees and maximizing tax efficiency can only increase your odds of success.

(Italic comments are my own thoughts on the acronym from the book.)

How a Second Grader Beats Wall Street is in my top three list along with The Richest Man in Babylon and Total Money Makeover.

Take Care,



4 thoughts on “Moving to 2nd Grader Portfolio

  1. The Oracle just came out with his 2016 shareholder letter today. He has some great points in there about passive investing. Let the index do the work and get back to work. Great wisdom as always.

    • Yeah it was a good read! It looks like he will win the bet by a wide margin. It is crazy how easy it is but how hard it is at the same time. I guess the concept is easy but actually simply utilizing passive investing is hard.

      I can’t remember who said it, but this saying has always stuck with me that “youth is wasted on the young.”

      Take Care,


  2. their are some very interesting perspectives going on here. It is so true to get lost in the market though. there is so much stuff that goes into the background of buying stocks and selling stocks. One almost needs to know about the happenings of the world and even the news that day and how it will affect certain securities. I have actually just started really paying attention to world news and trying to determine what affects this will have on certain sectors in the market. I will always strive to know when to add to a bullish trend, when to sell on a bearish trend and when average down on a dip. Best of luck.

    • Yes, also learned that when ‘comparing’ to the benchmark (typically S&P) people typically don’t include divis from the benchmark when making the comparison.

      For myself, I just see it as a nasty rabbit hole where I fool myself into thinking I understand the reasoning when there honestly might not be one besides irrationality. I am happy/fortunate to have survived the two years of active investing with a tad of trading.

      After looking, at Mr. Buffett’s bet with the hedgies about beating them with a simple S&P over a decade…Trouncing them not just beating…I have to ask myself why am I doing this? Honest answer because it was a thrill and fun!!!

      I am glad it got me into a more dedicated saver though since I had to have funds to indulge my ‘hobby.’ I still plan to keep up with everything just not on a daily (hourly?) basis like I have been. Eventually would pull back to just doing quarterly reviews…It will take a while to ween myself off the stock addiction though!!

      Take Care,



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