By Steve Tepper, CFP®, MBA
A few months ago, Barron’s issued their “2018 Mid-Year Roundtable” report. A panel of “investment experts” (Barron’s words, not mine) talked about the stock market landscape and gave their predictions for the rest of the year.
In general, they acknowledged that the first half of the year had been “challenging for investors” and saw continuing headwinds in the months ahead. Despite a booming economy and record low unemployment, they pointed to rising interest rates, the expanding federal deficit, and growing tariff battles as catalysts to lower corporate profit growth for the rest of 2018.
Not too bad a prognostication, I’d say. If only they’d packed up and gone home at that point.
But they didn’t. The panel also gave specific stock picks, with “detailed explanations of their investment allure.” I can’t tell you why, back in July, I decided to save that story so I could look back later and figure out if the picks were winners. I see stock pick lists all the time. For some completely random reason, I decided to hang on to the Barron’s list.
So how did the Barron’s “investment world’s top experts” do with their picks? Did they manage to beat the S&P 500 return from mid-year through mid-December, as I write this article?
Let’s take a look:
It’s a mixed bag, to be sure. A couple of the picks performed very well, including AutoZone, up about 25%, and Integrated Device Technology, up over 50%. That’s pretty good in any market, no less a down one. But there aren’t a lot of winners after that. Two stocks pretty much held flat, while half of the picks fell 24% or more.
In fact, of the five “experts,” each picking two stocks, only one chose stocks providing an average return in excess of the S&P 500’s return. His two stocks combined to return 25%, while the S&P fell almost 8%! That’s great if you went with his recommendations. If you chose randomly, however, there’s an 80% chance you would have ended up with the recommendations of one of the other four, whose picks, on average, lost more than 19%.
If you decided to “cover all bases” and go with all of the “expert” picks, your portfolio would have lost 10.4% (not accounting for taxes and fees), a worse result than just investing in an S&P 500 index fund.
This leads to an important conclusion. We all want to believe there is some action we can take when we see troubling times ahead in the market. But just because we might be able to accurately predict a down market doesn’t necessarily mean we can develop a strategy, and take action to profit, or mitigate losses in our portfolios. Too often, that “strategy” ends up being a bigger losing game than just staying put in a diversified portfolio and riding out the short-term waves.
Sources:
2018 Mid-Year Roundtable: Good News for Stockpickers by Lauren R. Rubin, barrons.com, July 13, 2018
10 Favorite Bargains of America’s Top Pickers by Matthew Johnston, Investopedia.com, July 23, 2018