If you supplement your daily copy of The Advocate with the occasional mainland newspaper, you’ll notice a “stocks to watch” story will make an appearance every few months.
And usually it’s better to watch these stocks than to actually buy any of them.
These stories are often put together by a reporter when there’s no news around, like in January this year when the Sydney Morning Herald published “The Stocks to Watch in 2011”.
According to the article, the flat returns of 2010 would continue so careful stock picking would be crucial in 2011.
So the reporter assembled a “selection of market experts,” the implication being these guys are ‘experts’ because they know what will happen next in the market.
Which raises the question – if they really know what will happen next, why are such prophets not relaxing on a tropical island somewhere?
Needless to say, over the first half of the year, their careful stock picking has been little more than throwing darts at a board.
Compare the experts’ nine carefully selected stocks against the ASX 300 Accumulation Index and there’s little evidence to support their expert opinions.
From 31 December 2010 to 31 May 2011 the expert portfolio in the article returned 0.6%, while the ASX 300 Accumulation Index returned 0.9%.
The important point, by merely investing in the broad index, your return year-to-date would have been 50% higher than a portfolio chosen by the experts.
Of course this is a short term measurement; however the article did suggest these were the stocks to own this year and stock picking would be crucial in 2011.
Unfortunately, those stock picks have been completely redundant.
Yet many people still believe in the myths of stock picking and market timing and for this they’re rewarded with more risk, less diversification and a lower return.
When you see “The Stocks to Watch in 2012,” I suggest turning the page.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL / ACL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances. If you want help with your financial future, we think we’re Australia’s top financial planner.
