Thursday, November 17, 2011

Stock Picking - Winners and Losers

I was reviewing my e*Trade account, and it is pretty pathetic.  My mutual funds are creaming it, in terms of rate of return, for the most part.  Here are the top winners and losers I invested in.  Stock picking is for chumps!
1.  AVIS (CAR)                           1600%
2.  MORNINGSTAR                       76%
3.  CATERPILLAR                         54%
5.  COSTCO                                     40%
6.  DISNEY                                      37%
7.  BMW                                          36%
I wish I could claim special genius for picking these stocks.  I bought AVIS at 75 cents a share, in February 2009, when the stock market tanked.  It came roaring back.  I think I was drunk when I bought it.  Talk about monkeys and dart boards!

Even more embarrassing is that I bought Morningstar thinking it was a different company, and it has been the second-best investment I have made in this account.

The remainder were bought because of news articles (always a bad idea) or my personal familiarity with the company or product (bad ideas as well) or places where I worked (bad idea, too).  I got lucky, I was not brilliant.

And note that some, like Disney, have had a roller coaster ride - going positive and dipping negative, over the last six years.

The stocks that tanked, of course, were the ones I invested in based on news articles, or my actual thinking about the stocks. It appears that darts at random is better than a well-thought-out investment:
1.  GE                                                -57%
2.  SYNTROLEUM                           -67%
3. VESTA WIND SYSTEMS             -74%
4.  BANK OF AMERICA                  -78%
5.  CEMEX                                        -82%
6.  FANNIE MAE                               -98%
7.  CHAMPION PARTS                   -100%
9.  GENERAL MOTORS                 -100%
I mistakenly thought that this "green initiative" and high oil prices would boost Syntroleum, but I failed to do the research on this company in great detail  The company cannot make money unless oil goes far higher, and even then, the stock was overpriced.

Vesta Wind systems seemed like a winner as well, but again, a lot of "Pop Stock" investors drove up the price.  Every day, I hear about a new wind farm going in, and often Vesta is mentioned.  It is not that they are not making money, just that the stock was overvalued when I bought it.

I took a gamble on Fannie Mae and Bank of America, figuring that perhaps they would not go belly up.   It worked with AVIS - in spades.  It backfired with Fannie, and BoA, at least so far.

GM was a bit of a surprise.  Should have sold it early on, but instead, I rode it all the way down. 

Fleetwood was a very profitable RV and mobile home manufacturer - the largest in the world.  Then the charismatic leader of the company retired, and his successors tried an ill-advised attempt to buy all of their sales outlets and make them corporate mobile home stores.  It didn't work - the salesmen fled, and the people who owned the lots just opened up across the street, selling competing brands. The damage to the company was significant.  Throw in a major recession two years later, and $5 a gallon gas, and the RV industry is shaken, and Fleetwood, once the "General Motors" of the RV industry is, well, the General Motors of the RV industry (Bankrupt) but without a Federal bailout.

Champion parts seemed like a good bet in a recession - they sold re-manufactured parts through Autozone and other stores.  With people keeping cars longer, the demand for "re-man" parts would go up.  This may be true, but Champion still went out of business.

CEMEX was a winner in the 1990s, with the stock price nearly doubling in value.  This Mexican cement supply company went on a buying spree and expanded into the American and Canadian markets.  They suddenly, someone figured out that the barriers to entry in the cement business are non-existent, and Cemex lost market share.

Overall, the E*Trade trading page shows that my account is worth 12% less than I "paid" for it.  This sounds like a bad track record, but it only takes into account the equity value of the stocks, not dividends.  Some of these stocks were bought using dividend earnings from others.

If you factor in how much I put into the account to open it (and subsequent contributions) and then deduct that from the current value, it shows a "gain" of about 31% in six years.  Not great, but better than a 12% loss indicated by the e*Trade chart.

So, what do I take away from all of this?  A number of things:
1.  Betting on stocks is just that - betting.

2.  The amateur investor does not have the time and resources to properly research stocks before buying them.  No matter how smart you think you are, there is a guy managing a mutual fund or analyzing that industry who is far smarter than you are.

3.  Success and failure in stock picking depends often on random chance more than brilliant insight.  The stocks I picked almost at random, succeeded.  The ones I thought about as "strategic buys" all tanked.

4.  Never gamble more than you can afford to lose.  This account represents less than 1/10th of my portfolio, so I could afford to experiment with it.  I would not recommend stock picking as the basis of a large portion of your investments.
Perhaps I will cash in this account and roll it over into a mutual fund.   Or maybe bonds.  Betting on Stocks has not really been such a great deal for me.