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Monday, December 27, 2010

An Educated Investor?

There is a marketing ad by SYMS that states “An educated consumer is our best customer”.

The theory behind this is that an educated consumer would know value and quality when they see and hear it and know to come to SYMS for the best advice and deals.

Does this also hold true in the investing world?

Is an educated investor the best investor?

This time of year you can search countless sites and articles about what to invest in for the coming year.

There are plenty of “experts” out there who give advice. Some, well - actually most, give some sort of value added education to their customers so that they can make informed decisions and realize that they are getting valuable, quality, investment ideas from “the pros”.

But how good are the experts?


Can an individual investor do just as well or even better?

Well, since I am NOT a psychic and can NOT predict the future, I can NOT tell you how well these “experts” will do in 2011.

But, I can tell you how well they did, and did not, do in 2010.

I searched for 2010 stock picks from various sites and came up with a fairly diverse list of expert picks and their results for 2010.

Editor Paul Goodwin -17.73%
E-House China(EJ)-20.21%

Alan Gayle -14.15%
Adobe Systems (ADBE) -15.83%
Hewlett-Packard (HPQ) -19.03%
Microsoft (MSFT) -7.58%

Editor Byron King -5.61%
Cameco (CCJ) 20.68%
Gammon Gold (GRS) -31.90%

Newsletter Sound Advice +0.70%
Boston Scientific (BSX) -13.09%
Maxim Integrated Products (MXIM) 14.49%

Marc Johnson +3.11%
McDonald's (MCD) 22.86%
Medtronic (MDT) -16.64%

Kiplingers +4.85%
UPS (UPS) 25.01%
Kimberly-Clark (KMB) -1.66%
PepsiCo (PEP) 7.35%
Paychex (PAYX) -1.06%
Western Union (WU) -4.40%
Sysco (SYY) 3.01%
Chevron (CVX) 16.10%
Broadridge (BR) -5.59%

Howard Ruff +5.76%
Barrick Gold (ABX) 26.86%
Rydex Inverse S&P 500 Strategy Fund (RYURX) -15.33%

Chris Temple +6.22%
Matrix Service (MTRX) 11.00%
PowerShares DB US Dollar Index Bullish (UUP) 1.44%

editor John Buckingham +9.20%
Palomar Medical Technologies (PMTI) 33.04%
Navios Maritime (NM) -14.63%

Channing Smith +15.39%
Yum Brands (YUM) 41.46%
Procter & Gamble (PG) 6.77%
Wal-Mart Stores (WMT) -0.26%
PetSmart (PETM) 51.55%
CarMax (KMX) 33.01%
Quest Diagnostics (DGX) -10.14%
McKesson (MCK) 12.49%
Abbott Laboratories (ABT) -11.77%

Mike Avery +20.70%
Monsanto (MON) -19.77%
Apple (AAPL) 51.53%
Nike (NKE) 30.34%
Value Line Survey 21.81%
American Tower (AMT) 16.19%
Weight Watchers International (WTW) 27.43%

Rich Howard +31.92%
DuPont (DD) 46.03%
Barrick Gold (ABX) 26.86%
Newmont Mining (NEM) 22.86%

Jerry Jordan +32.49%
National Oilwell Varco (NOV) 46.54%
Halliburton (HAL) 31.25%
PowerShares DB Agriculture (DBA) 19.68%

The +33.29% (AMZN) 34.01%
Comcast (CMCSA) 31.94%
Microsoft (MSFT) -7.58%
Red Hat (RHT) 49.06%
Research In Motion (RIMM) -13.88%
VMware (VMW) 106.18%

Editor Dan Sullivan +42.23%
Massey Energy (MEE) 24.97%
Teck Resources (TCK) 59.49%

Editor George Putnam +51.04%
US Airways Group (LCC) 105.58%
Global Crossing (GLBC) -3.50%

The overall average for all these sample experts is 14%. Not too shabby. But some, obviously did better than others.

This chart does tell us that some of the experts did quite well in choosing stocks that would perform well over the whole course of the year. A pretty amazing feat considering how volatile the stock market was in 2010.

What this chart does not tell you is that some of the experts who seemingly got it wrong, really did have it right, but just not for the whole year.

Hint: this is where the education comes into play . . .

Couple cases in point:

RIMM: A well run tech company that fell out of favor from April – September, mostly due to the advancement of the competitions “smart phones” and even a couple political land minds from countries who wanted access to the secure transmissions and threatened to ban sales of RIMM products. Good companies who also by the way have market share will successfully navigate these land mines and down trends in sentiment and eventually “surprise” the market and come back into favor. This “out of favor” slide sent the stock from a high of $75 in March to $45 in September. I believe the analyst in picking RIMM as an investment for 2010 said something along the lines that it was too smart and agile of a company which also happened to “invent the smart phone” to permanently fall to the competition.
Well, that analyst was and is correct and the company has since surprised the market with good reports, new popular products and a reasonably strong future and now sits at a price of about $60. That is a 30% return up from its low point. Yet for the year, the stock and analyst seemingly got it wrong with a -13% YTD return.

UUP: A fund that rises and falls based on the strength or weakness of the dollar. The analyst recommending this stock for 2010 had it exactly right and , unlike this chart, an educated investor would have made a decent profit by following his advice. You see, he saw a short term uptrend in this dollar index fund but recommended selling once it got near the high 20’s. And low and behold, that is exactly what happened. The fund rose from $23 to $26 during the first six months of 2010 then fell back down to where it is today.

So, what sets a good investor apart from a bad investor?


The more you learn about how the market works, what makes a company a good company or bad company or even a good company out of favor, the more you can make educated decisions and hopefully good decisions on investments.

Unlike year end stock predictions, where the last 12 month results of a particular company is passively listed, educated investing is an active process.

Are you or the experts going to get it right all the time? No. Are you and the experts going to make mistakes? Yes. Are you and the experts going to get it right some of the time? YES!

The important thing is to study and watch the market. Learn from your mistakes as well as your successes.

An educated investor may not be the best investor, but he or she will be a smarter investor and actively involved with the market instead of passively investing in yearly expert lists.


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