Welcome to another quarterly update of how my stock portfolio is doing and whether or not the experts were able to us find good stocks to invest in. Every year I invest a small portion of my portfolio into individual stocks to gain experience with them as well as attempt to increase my wealth. My long term goal is to build a stable portfolio of dividend yielding stocks that will eventually provide me a steady stream of income.
If you’ll remember: The last time I bought stocks back in January, I noticed that each of the major financial websites had their own “analyst opinion” section that is supposed to tell you how the stock is going to do over the next 12 months. Even though I buy my stocks based on qualities like long-term earnings forecasts, dividend yields, PE ratios, and a few others, for fun I decided to write down all the expert opinions and monitor them over the next 12 months.
Will one of these financial media sites be able to predict the right stock performance for all 10? Will any of them be able to pick a stock portfolio that beats the portfolio I put together or even the S&P 500 index? Let’s read on to see how we’re doing at our nine-month check-in.
The Stock Picking Experiment:
The four major financial websites where I collected analyst opinions from were:
- CNN Money
- Yahoo Finance
- MSN Money
Because each of their analyst recommendations has their own unique scale (i.e. some have a 1-5 scale or 1-10 scale), I decided to communize them all by creating a simple 4-class color-coded ranking system. Green and orange were recommendations that the stock was a good purchase while yellow and red were both signals that the stock would be a poor choice.
As of November 13 here is how our portfolio performed:
So far the best performing stock out the group is Johnson & Johnson with a 23.4% increase! 3 out of the 4 experts predicted this.
The worst performing stock in the group is AFLAC Inc with a modest 5.95% loss. Unfortunately all 4 of the financial sites got this one wrong.
Which Expert Got the Most Right?
Which website’s expert opinions are in the lead so far with the most positive predictions?
- Both Yahoo and MSN are in the lead with 9 out of 10 correct predictions.
- CNN is in second place with 6 out of 10.
- Fidelity unfortunately made the most misjudgments about the stock performances with only 5 out of 10 right so far.
Expert Portfolio Performance:
While that’s one way to look at this, let’s take this from a different perspective.
Suppose I had selected my 10 stocks the way I normally do and then consulted the big financial websites to see whether or not their experts approved. THEN what if I had only bought the stocks they recommended (i.e. if only 5 of them had been good purchases, then I only bought 5 out of the 10). If I had done that, here is how things would have worked out so far:
My portfolio return 9.4% versus:
- CNN: 5.9%
- Yahoo: 9.4%
- MSN: 9.4%
- Fidelity: 10.3%
Interestingly enough even though Fidelity got the most number of stock picks wrong, the ones they did get right yielded almost 1% more in returns than what I’m currently receiving.
How About When You Compare This to An Index Fund?
Would any of the hypothetical portfolios have actually beaten the S&P 500 stock market index so far?
Unfortunately no. The S&P 500 index (adjusted for the dates in which I made my stock purchase) is at 14.4% for the year. My portfolio is at 9.4%.
That means that if I had just went the easy route with an index fund rather than trying to pick my own stocks and outwit the market, I’d have almost 53% more earnings to boast!
Conclusions – Did We Find Good Stocks to Invest In?
So far – not really. While Yahoo and MSN seem to each be 90% right with their predictions, I don’t believe I’d assemble a portfolio based on just these opinions. A better approach would be to make your selections and then simply use the recommendations to validate your choices.
What’s an even better approach? Once again – investing in the S&P 500 wins over everything else. Just like John Bogle and thousands of other advisers recommend, unless you know something the rest of us don’t know, you’re most likely better off just putting your money into a stock market index fund rather than trying to beat the system.
Looking ahead for 2015 other financial experts are already saying that it’s going to be a ho-hum year for stock performance – predicting a 2% increase. If that’s at all true, then perhaps I should go back to using the Dogs of the Dow to find good stocks to invest in. By investing in the Dogs of the Dow you’ll be investing in a select group of stocks from within the Dow Jones index that will produce the greatest dividend yield. If I can secure a 4% dividend return on top of an assumed 2% gains return, then that’s not too bad.
Readers – How are your stocks doing this year? Is anyone’s portfolio beating the S&P 500 index?
Image courtesy of Teresa Avellanosa | Flickr