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Money magazine. This publication has been around for many years, 30+ I do believe. And I admit to being a subscriber. I enjoy most of their articles and think the magazine has a lot to offer. But I recently wrote a blog entry about the 30 stocks that make up the Dow Jones Industrial Average (DJIA).

As I was reading my most recent issue of Money, I came across a regular (monthly) piece that they have, written by Michael Sivy, who happens to be one of the publication’s senior writers. Mr. Sivy publishes a list of 70 stocks that he “recommends” and updates the performance of these 70 stocks every month. I use the term recommends in quotations because he doesn’t come out and directly say to buy them. I mean, everyone’s financial situation and investment objectives can be quite different so what is good for one person may be poison for another. But he highlights these 70 stocks to give the small investor some excellent, quality equities to choose from without having to do extensive research.

My problem with the monthly column is this. Mr. Sivy has done little more than suggest you index your money. 21 of the 70 stocks that he is recommending are part of the 30 stocks in the DJIA. He is recommending that you buy 2/3 of the DJIA, however he never says how much of each stock in his pick of 70 you should own in comparison to the other stocks, but he recommends 21 of the 30 DJIA stocks nonetheless.

Now most investors won’t go out and buy 70 stocks. Or even 20 for that matter. Every time you purchase or sell a stock you will most likely incur a fee from a broker. So most small time investors only own a few stocks. So for Mr. Sivy to recommend buying 21 of the 30 stocks in the Dow, well it would simply be easier to buy an ETF that tracks the Dow. You would pay less in trading fees (i.e. it’s easier to pay a fee to trade 1 ETF share as opposed to 21 different company stocks) and it would be easier to track your gains and losses as you bought and sold shares. To the average investor it doesn’t make sense to create a basket of stocks based on Mr. Sivy’s recommendations unless you enjoy doing more work for a similar return.

Later on, perhaps in my next blog entry, I will highlight some of my personal favorite stocks that I think Mr. Sivy has overlooked in presenting his 70 that he picked. But for now just know that Money isn’t doing you much of a favor by picking these 70 stocks.

You might be wondering, which of the 30 stocks in the Dow did he leave out of his super 70? The nine stocks that he does not feel compelled to “recommend” are as follows: Altria Group Inc (a tobacco company), AIG (insurance and investments), AT&T (telecom), General Motors (automotive), HP (computers), Honeywell (diversified industrials), McDonalds (food), Merck & Co (pharmaceuticals), and Verizon (telecom).

Now I am not necessarily faulting him for leaving some of these companies off his “recommended” list of stocks. General Motors is going through a tough time trying to cut its losses right now, and AIG recently (within the past year or two) was having problems with its former CEO and founder. Merck was left off but Mr. Sivy had rival and fellow Dow component Pfizer on his list.

Ultimately though, I want people to realize that the rise in Exchange Traded Funds (ETFs) have begun to make mutual funds a thing of the past and furthermore are making individual stocks seem expensive to own, hold and trade. ETFs fluctuate in value throughout the trading day like the underlying stocks that make them up, which is in contrast to mutual funds where you get the price at the close of the business day. A lot can happen between 9:30am EST and 4:00pm so if you put in an order at 11am to buy a mutual fund and you don’t know your price till 4pm, you could end up paying more (or perhaps less) than you thought you would. Ultimately, this delayed pricing model of mutual funds will lose out to the efficiency of ETFs. And why invest in Michael Sivy’s 70 (or any portion of his 70) stocks when you can invest in an ETF that diversifies within the individual shares.

More to come, as always I welcome your feedback…

This entry was posted on Tuesday, May 22nd, 2007 at 12:04 am and is filed under Investing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.