The Balhiser Crazy Ivan Account (CIA) is as much about investment psychology as it is about investment logic and techniques.  It is about  concentrating financial angst, excess energy, and investing whims into a relatively small play-money account.  It started as a rollover IRA with about $17,000 in 2004.

The Balhiser CIA leverages concepts from the new field of behavioral investing as well as  financial writers including Jason Zweig’s Book Your Money and Your Brain.

The basic idea is to put a small about of money aside (say 10% of one’s investing portfolio).   This play money, or mad money, can be used to speculate, test short-term investment ideas and play hunches.  And don’t add money to this account once it is established.  Once it’s gone its gone… no more fun money.

Some investors have no need for a Crazy Ivan account.  These are people who are content to invest exclusively for the long-run and aren’t tempted to dabble with their account or play hunches.  If you fall into this group, just chuckle as you see my occasional updates and anecdotes about the Balhiser CIA.

Other investors, myself included, have a lot of financial energy.  For such investors, it takes effort and discipline to pace for the financial marathon.  It takes effort and force of will to stay on track with smart index investing approaches.  For example, it took me significant effort too avoid the dot-com investing craze when year after year I was assailed with stories of huge gains at BBQs and the proverbial water cooler.  In the long run, I’m very glad I resisted the temptation to de-diversify in techs.  Discipline allowed me to avoid the financial devastation of the dot-com implosion.

I find the Balhiser CIA a helpful diversion.  It’s a source of fun, and a method to easy some of my financial angst and dissipate my excess financial energy and enthusiasm.  Yes, enthusiasm or exuberance, in excess is dangerous.    It is also a tool I use to try out investment strategies and get a feel for how I react emotionally to them.  If you find it helpful, great. If you find it amusing, that’s great too.

I leave you with a couple key points:

• The Balhiser Crazy Ivan is NOT my main portfolio.  My main portfolio is comprised of index funds, bond index funds, money markets, other mutual funds, and very few (to none) individual stocks.  Index funds are at the core of my overall portfolio.
• In general, I advice investing and holding diversified index funds — both bond and stock index funds.
• If you do chose to have a mad money account: keep it small (less than 10% of your investing portfolio) and make sure that it is money you a can easily afford to lose.  Resist the temptation to replenish it with new funds.