Commentary: Look to the future for portfolio performance
By Jeff Reeves
ROCKVILLE, Md. (MarketWatch) — Investors love trends, charts and numbers. We have to — because if somehow we can plot a trend from a mess of candle graphs and historical data, we can convince ourselves that our portfolio will be profitable in the months ahead.
Right now, investors are being overloaded with a myriad of year-end recaps highlighting the best stocks and sectors from the past 12 months, but make sure you read all of these stories with a grain of salt. They tend to offer little insight on the stock market’s future performance, and acting on them can do more harm than good to your portfolio
Best stocks of 2010 were worst of 2009
At the end of 2009, investors were thrilled with the way the stock market had bounced back from the March lows and was humming into a new year. The typical “year in review” story in December 2009 would have highlighted these stocks as among the Dow Jones Industrial Average’s (DOW JIA) top performers:
•American Express Co. (NYSE:AXP) , up 126% in 2009
•Microsoft Corp. (NASDAQ:MSFT) , up 60% in 2009
•IBM (NYSE:IBM) , up 59% in 2009
•3M Co. (NYSE:MMM) , up 49% in 2009
•Alcoa Inc. (NYSE:AA) , up 47% in 2009
The average gain in this group is 68% — more than three times the broader Dow’s gain of almost 19% on the year. Even the “worst” of this group doubled the index’s returns. Read about six stocks you don’t want to own in 2011 on InvestorPlace.
So how have the best of 2009 fared this year? In a word … badly.
•American Express, up 13% in 2010
•Microsoft, down 10% in 2010
•IBM, up 13% in 2010
•3M, up 8% in 2010
•Alcoa, down 11% in 2010
With the Dow up 8%, only two of these top-five picks have outperformed the market — and just barely. When you take the average return of the five stocks, you’d barely do better than break even on the year.
To add insult to injury, two even made the list of the Dow’s five worst performers of 2010: Microsoft and Alcoa.
Worst stocks of 2009 were so-so in 2010
Now that we’ve soundly proven that past performance doesn’t indicate returns for the coming year, what about the worst performers?
A look at the numbers shows that being one of the dogs of the Dow one year means you’re ripe for a rebound. Take a look at the worst five components of 2009:
•Verizon Communications Inc. (NYSE:VZ) , up 4% in 2009
• rocter & Gamble Co. (NYSE G) , up 1% in 2009
•General Electric Co. (NYSE:GE) , down 2% in 2009
•Wal-Mart Stores Inc. (NYSE:WMT) , down 3% in 2009
•Exxon Mobil Corp. (NYSE:XOM) , down 13% in 2009
That’s pretty ugly. Read about six ways to trade the jobless recovery myth on InvestorPlace.
Now look at how these stocks performed year-to-date in 2010:
•Verizon Communications, up 6% in 2010
•rocter & Gamble, up 6% in 2010
•General Electric, up 13% in 2010
•Wal-Mart Stores, up 4% in 2010
•Exxon Mobil, up 7% in 2010
Though all have underperformed the Dow’s 8% gain on the year, the group’s average return of 6% is only slightly worse than the broader index.
What predicted the best stocks of 2010?
The short answer is “nothing.”
Consider McDonald’s Corp. (NYSE:MCD) , which has gained almost 32% in 2010, almost four times the broader market. In 2009, however, it gained a mere 4% compared with a 19% gain for the Dow.
Of course, some high-flying stocks did post another strong year. One of the best performers in the Dow of 2010 is DuPont (NYSED) , with a 51% year-to-date return. That comes after a 41% gain last year compared with the Dow’s 19% gain in 2009.
Perhaps most muddling is that most of this year’s top performers were middle-of-the-road picks last year, including 2010’s top-performing stock Caterpillar (NYSE:CAT) Caterpillar is up 60% year to date after only moderately outperforming the market in 2009 with 33% returns.
What does all this add up to? Unfortunately, not much. The clearest lesson drawn is an obvious one: Markets are cyclical, and blue-chip stocks that have their moment in the sun one year rarely remain top performers the next. Read about 11 market predictions for 2011 on InvestorPlace.
Or, to beat a tired, old drum, past performance does not indicate future returns.
As you peruse the year-end stories out there, keep in mind that these are simply a lighthearted look in the rearview mirror and nothing more. They may be fun to read, but your best bet for a profitable 2011 is to focus on the future.
Jeff Reeves is editor of InvestorPlace.com . As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter . |
发表于 2010-12-8 02:17
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