By David Parkinson
If the start of a new decade has you pondering rejigging your portfolio to lock into some of the best bets for the next 10 years, you might want to take a look at what happened to stocks that, 10 years ago, were expected to be the best bets of the last decade.
Over the Holidays, the Wall Street Journal's Brett Arends wrote a column pointing out the large discrepancy between the stocks identified by experts (in several late-1999 stock-picking surveys, including ones in the Washington Post, Money Magazine, and SmartMoney/Wall Street Journal) as the top picks for the 2000-09 decade - and the stocks that, history now shows, actually were the top performers of the past 10 years.
Here are the most-recommended stocks from the Washington Post survey: America Online (NYSE:AOL), Cisco Systems (NASDAQ:CSCO), Qualcomm (NASDAQ:QCOM), MCI WorldCom, Lucent Technology (LU) and Texas Instruments (NASDAQ:TXN).
Clearly, the analysts who talked to the Post didn't see the tech collapse coming. Every one of those names (at least, the ones that are still around) trades at a fraction of its 2000 price.
Meanwhile, the S&P 500 stocks that had the best performance of the past decade - Mr. Arends singles out Southwestern Energy (NYSE:SWN), XTO Energy (XTO), Range Resources (NYSE:RRC) and Precision Castparts (NYSE:PCP) - where barely household names in their own households when the decade began. If they were on your radar at the start of 2000, you have a mighty fine radar.
Gabriel Wisdom, a U.S. investment adviser and author of a new book called Wisdom on Value Investing: How to Profit From Fallen Angels, decided to run these two lists of stocks to see how investors would have done if they'd invested in the Washington Post's doomed basket of picks, against buying the actual top performers Mr. Arends identified.
If you'd invested $1,000 in the Post's list of top picks on Dec. 31, 1999, you'd have $291 now.
If you'd invested $1,000 in the list of actual top performers on Dec. 31, 1999, you'd have $32,937 now.
It wasn't just the Washington Post survey that touted stocks that turned out to be duds. Money Magazine's top picks lost about 20% over the decade. The SmartMoney/Wall Street Journal picks lost about half their value.
Mr. Wisdom argues that the stocks to buy aren't the market darlings, but exactly the opposite - the downtrodden, the unpopular and the obscure. Those are the stocks trading at bargain prices that have the best potential for big gains. The hottest stocks? They are often the ones with the least upside and the most risk.
Yes, this may seem an old and obvious point. But it's amazing how often it's lost, even on professional investors, as the herd mentality takes hold.
"People feel comfortable buying what's popular and familiar. Unfortunately, they are setting themselves up for failure, and devastating losses," Mr. Wisdom wrote.
"The most powerful and dangerous force on Wall Street is the herd instinct," Mr. Arends said. "Look out."