2018 Stock Picks.

The parade of 2018 stocks picks are appearing on popular social media sites and in traditional financial magazines.  Brokerage firms, money managers and financial journalists are touting their best ideas for legions of investors. These sage stock pickers dispense names that are expected to outperform the general population of publicly traded companies.

Last year I published a list of 15,000 stocks to buy and, as a group, they did well.  The companies were owned in six different mutual funds managed by Dimensional Fund Advisors:  Core Equity I (DFEOX), US Micro Cap (DFSCX), US Small Cap (DFSTX), Real Estate (DFREX), International Core (DFIEX) and Emerging Markets (DFCEX).   The portfolio has generated a YTD return of 17.5%.  The best performing fund has been the emerging markets fund up 31.67%!

The S&P 500 is having a stellar year, up 20.13%.   It has been led by Align Technology, Boeing, and Nvidia as all three have posted gains greater than 75%.  However, not every stock in the index has done well.  About 100 companies have a negative return and half the stocks, including the 100, are underperforming the index.

Hendrik Bessembinder, finance professor at Arizona State University, published a paper Do Stocks Outperform Treasury Bills?[1]   He examined the performance of 25,782 stocks from 1926 to 2015.  The stocks produced monthly gains 42% of the time and the top 4% of stocks (1,031) accounted for the entire dollar gain in the market.  T-Bills never lost money in his study.  Despite this, stocks crushed T-Bills over the long term by a multiple of 256 to 1.  A $1 investment in T-Bills was worth $21 at the end of 2015 and $1 invested in the S&P 500 grew to $5,386.[2]

The best way to make money in the stock market is to own all the winners and avoid all the losers but this isn’t possible.  Blue chip franchises like GE, Alaska Air, Campbell Soup, Kroger’s, Walgreen’s, Harley Davidson and AutoZone are all down double digits this year.  Riot Blockchain, on the other hand, is up 870% because of its name.  Riot Blockchain was called Bioptix prior to its name change, a failed medical business.[3]  I’d be surprised if Riot Blockchain was on any list of stocks to buy in 2017.

As you research ideas for your portfolio focus on your financial plan and long-term goals.  Your plan will determine your investment selection and asset allocation.  It will also help you avoid getting get caught up in market hysteria or from being whipsawed by short-term trading moves.

Money is made by sitting, not trading.  ~ Jesse Livermore

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  For more information please visit www.parrottwealth.com.

December 18, 2017

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog.  Investments are not guaranteed.  Options involve risk and are not suitable for all investors.  Photo Credit: Marie Appert, Rose Parade, 2012

[1] https://www.marketwatch.com/story/why-picking-stocks-is-only-slightly-better-than-playing-the-lottery-2017-06-28, 9/19/2017, Paul A. Merriman

[2] Dimensional Fund Advisors 2016 Matrix Book.

[3] https://www.fool.com/investing/2017/12/18/why-riot-blockchain-stock-is-soaring-on-monday.aspx, Jordan Wathen, December 18, 2017.

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