If I ever had any doubt that trying to outsmart the stock market was futile, a couple of statistics that I recently came across have confirmed my thinking.
One was an article in the Wall Street Journal that analyzed the performance of the most highly recommended stocks of ten years ago. AOL, Cisco Systems, Lucent, Qualcomm, MCI, Worldcom, and Texas Instruments all topped analysts’ lists in 1999. Had you taken their recommendations and sunk $1,000 into each of these stocks, you’d now be looking at $1,745. Granted, this decade ended as a lousy one for the stock market, but even so…
Conversely, the real winners of the decade were several companies that hardly are household names: Southwestern Energy, XTO Energy, Range Resources, and Precision Castparts. Just $1,000 wagered on each of these ventures in 1999 would be worth nearly $132,000 today.
Just the names of the companies show how the focus of investors – and pretty much the entire country – has changed. The tech companies dominated stockpickers’ lists in the late 1990s and into 2000 and 2001. Then, the Internet bubble burst, and the stocks came crashing down to earth. Today, energy is top of mind for investors, as well as consumers and politicians.
Globalization also is playing a role in the performance of different stocks. Had you invested $100 in the S&P in 1999, you’d now have $91, according to this recent article in Newsweek, which draws from a Merrill Lynch report. Had you gone further afield and put your C-note in emerging market stocks, you’d now have $262. Somewhat surprisingly, the South American nation of Columbia was the best performer, generating an eye-popping return of 1,529 percent. Conversely, while China is the focus of much attention, it rose by a relatively modest 150 percent.
A decade from now, it’s hard to know which countries, business sectors and companies will be capturing headlines and investor sentiment – and backing that up with solid performance. Analysts can do all kinds of projections, but too many variables are unknown or hard to capture.
Given that no one has a crystal ball that works with any accuracy, it doesn’t make much sense to pay anyone big bucks for their supposed expertise. Instead, you’re best off focusing on fund expenses, and keeping those as low as possible. True, this isn’t as glamorous as seeking out the latest high-flying fund, but it the impact on your bank account is significant. Consider these numbers, which I calculated using a fund analyzer on the FINRA website: I invested $10,000 in two funds, each returning an estimated 5 percent annually. However, one has an annual operating expense ratio of .09 percent, while the other’s annual operating expenses run 3.23 percent. The difference in the funds’ values after ten years is staggering: the first is worth $16,143, while the second would return $11,793. No fund manager is going to be able to close that gap, no matter how knowledgeable and insightful.