Marketocracy Masters 100 - Is the World Going Crazy?

Just when you think that you have seen it all, along comes another goofy scheme to take your money. The Master 100 Fund (MOFQX) is a gimmicky mutual fund that is to be avoided. MOFQX gets its stock picks from the so called "100 best" amateur investors that "manage" simulated stock portfolios using funny money. Investors are allocated one million dollars of funny money and asked to buy and sell stocks in a virtual portfolio. The investors with the highest returns are considered to be the cream of the crop and many of their stock selections are included in MOFQX, the real portfolio that any investor can buy with real dollars. More details about MOFQX and its stocks are available at marketocracy.com.

The fundamental problem with buying and selling stocks with funny money is the same problem you have playing poker or any game of chance with matchsticks as your reward. Players or investors tend to take large risks because there is no real penalty or pain for losing. Managers of virtual portfolios often buy very risky stocks at any price hoping to hit the jackpot. Sometimes they will bet correctly and win a small paper fortune thus boosting their returns. These are the people who Marketocracy calls the best investors. Their success has little, if anything, to do with prudent investing skills but more with getting lucky when they bet the farm. Remember that MOFQX is based on the picks of these lucky gamblers who generate artificially high returns because they are never confronted with any real risk.

Because MOFQX includes many of the fad stocks included in the virtual portfolios, its price chart is similar to the ups and downs of a yo yo.

The Complete Trading Model (CTM) analysis of all buy and sell combinations of MOFQX from November 19, 2001 through March 21, 2005 quantifies the ups and downs of the mutual fund. Of the 351,541 daily buy and sell combination 66.58% made money. Much of the money was made because of the upside from March 2003 through November 2003. Since the peak in late January 2004 the fund has been on the downside. Only 22.45 percent of the 42,195 downside buy and sell combinations have been profitable.

Assume that you invested $10,000 in MOFQX on January 1, 2004. You would have purchased 759.878 shares at $13.16 per share. On March 21, 2005 those shares were worth $8,442.25, a 15.58 percent decline.

Because MOFQX frequently buys and sells stocks, the tax liability for fund owners is substantial. In 2004 the short-term gain distribution was $0.55228 per share and the long-term gain distribution was $0.46308 per share. So for every 100 shares that you owned you paid tax on $55.228 of short-term gains and $46.308 of long-term gains. Clearly MOFQX is not tax efficient

In addition to the taxes you pay the fund charges a relatively high 1.95% annual expense ratio.

The managers of the pretend stock portfolios at Marketocracy may be having fun investing funny money but real investors with real money in MOFQX are not so happy. Avoid MOFQX.