IS BUILDING A BUY-AND-FORGET PORTFOLIO that tries to capture long-term trends a good idea? Well, FORTUNE Magazine thought it was, so back on August 14, 2000, they published a list of 10 stocks and said, “If you're a long-term investor, these 10 should put your retirement account in good stead.”
To begin, FORTUNE identified the following long-term trends that they felt had the potential to transform the economy.
- The lightning-fast changes in communications networking.
- The brave new world of entertainment.
- The “boomerization” of financial services.
- The coming of age in biotech.
From there, the magazine came up with a list of 10 stocks to capitalize on these trends.
So, let’s see how their 10 stock picks performed over the next 12 years and 4 months between August 14, 2000 and December 19, 2012 as reported by Ritholtz.com.
- 2 of the 10 stocks went bankrupt.
- 1 received a government bailout.
- 2 were bought out at prices lower than their August 14, 2000 price.
- 0 stocks rose in price by the end of the 12-year period.
- The cumulative portfolio, excluding dividends, declined by more than 50 percent during the period. By comparison, the S&P 500 index rose more than 20 percent during the period.
As you can see, the magazine’s results were not pretty. Here are four conclusions from this buy-and-forget experiment.
1) Don’t get your stock picks from magazines! You have to do serious research.
2) Long-term trends are powerful, but the winners at the beginning of the trend may not be the winners at the end of the trend.
3) Since “winners rotate,” it’s important to have a “sell discipline” to help you avoid hanging on to stocks long past their prime.
4) To paraphrase an old saying, if you follow a static crystal ball, you may endup eating a lot of broken glass.
While nobody can predict the future, trends can last a long time and may offer profitable investment opportunities. However, as this example shows, you still have to diligently manage your portfolio so you don’t get caught on the wrong side if a shift happens.
Weekly Focus – Think About It…
It came without ribbons! It came without tags!
It came without packages, boxes, or bags!
Then the Grinch thought of something he hadn't before!
Maybe Christmas, he thought, doesn't come from a store.
Maybe Christmas... perhaps... means a little bit more!
--Dr. Seuss, How the Grinch Stole Christmas!
The rest of the report can be found here.
Please be sure to visit the Parks Wealth Management website at www.parkswm.com.
James T. Parks, CFP®, AEP, AIF
President and Wealth Advisor
Parks Wealth Management
216 East Ridgewood Ave., 2nd Floor