Follow the Bouncing Ball

To make money in stocks, buy winners. To make money betting on horses, pick the fastest one. To make money betting on football, pick the best team. It’s obvious! As Will Rogers once said, “Don’t gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don’t go up, don’t buy it. Of course, it’s impossible only to pick the winners.

In 2016, the energy sector rose 29.2%, and it was the best performing sector. If you invested in energy in 2016, you lost 2.5% in 2017, 20% in 2018, 9.3% in 2019, and 33.1% in 2020. The energy sector was the worst-performing sector for four years in a row. This year, it’s one of the best.

Utility stocks were the worst-performing sector in 2013 but the best in 2014. Financials finished 2019 as the second-best sector, and last year it was the second-worst.

Healthcare stocks underperformed energy stocks by 32% in 2016 and outperformed them by 26% a year later.

Trying to pick the best sectors or stocks can result in a feast or famine. If you’re correct, you’ll make money. If you’re wrong, you’ll lose money. Simple.

From 2011 to 2020, the S&P 500 index was never the best nor worst-performing asset class, nor did it finish any year in negative territory. It was consistent and stable relative to the individual sector components.

An S&P 500 index fund, or total market index fund, gives you exposure to every sector without trying to pick the best and avoid the worst. A broad-based index fund is an excellent choice for any portfolio.

January 14, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

Data Sources: YCharts

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