I’ve been investing in the stock market for over four years now, and at times it’s been downright ugly.
The only investing strategy that makes sense to me is buy and hold. Short term investing, even for just one year, seems like a complete crap shoot to me.
And since I’m not someone who likes to just wildly throw around predictions without data to support it, I’ve decided to track stock market gains in 2012 with a variety of different types of stock investments. At the end of 2012, we will be able to see if picking stocks really requires any skill.
Every month in 2012, I am going to track the following nine investment strategies and see which one provides the best return on investment. I will also track by the three overall groups. Feel free to weigh in on which of these investment strategies and groups will end up being best on Dec 31st, 2012.
Disclaimer: This is not a recommendation to invest in any of the following securities. In fact, I strongly recommend you DON’T invest in some of them. This article and all articles to follow in this series are for entertainment purposes only.
Picking stocks is not for the inexperienced or uneducated, as it follows more of a scientific approach than a luck-centric one. An online masters in finance is a great start for someone interested in learning more about stocks and how to make a living working with them
The Experts
We have the general market, a mutual fund by a large financial firm, and stock picks from expert financial analysts. In theory, these should be the top performing stocks of the bunch.
S&P 500
View Stocks Here: S&P 500 Companies (.INX)
Why This Might Work: If you want a diversified group of large American companies that pretty much tracks the market in general, this is it.
Why it Might Not: If you think America is heading into another recession or even a depression, you probably don’t want this.
Vanguard Mutual Fund
View Stocks Here: Vanguard Information Technology Information Fund (VITAX)
Why This Might Work: The Street is a big financial website, and they recommend this fund as the best Vanguard fund for 2012. This is exceptionally smart people recommending a mutual fund managed by other exceptionally smart people.
Why it Might Not: If you think these exceptionally smart people aren’t as smart as they say they are.
The “Experts”
View Stocks Here: Forbes Experts Picks including CAT, FDX, HSY, COF, MAKO, MSFT, ARCO, TKC, AA, STD
Why This Might Work: If you think people with advanced degrees in finance/economics and years of experience reporting on financial markets can predict the future.
Why it Might Not: Maybe these people can’t predict the future any more than you can.
The Amateurs
Maybe you are a conspiracy theorist and you think the “experts” are corrupt. You want some good old friendly advice from your local blog authors and friends. Well, here are some options:
Personal Finance Bloggers
View Stocks Here: Money Pros Index
Why This Might Work: If you believe that personal finance bloggers (yours truly and six others) actually know anything about picking stocks.
Why it Might Not: If you think the other personal finance bloggers are as bad at picking stocks as I am.
The Hoff
View Stocks Here: 12 Stock Picks for 2012
Why This Might Work: If you think my friend The Hoff knows what he is talking about.
Why it Might Not: If you look at the return on his 2011 stock picks. Yeesh!
Tag
View Stocks Here: How to Invest When You’re Clueless
Why This Might Work: My girlfriend Tag invested in a lot of ETFs that track different indexes. Her goal was to mirror the market, but also get some exposure to emerging markets and other more specific investments.
Why it Might Not: I helped her pick the investments.
So Risky It’s Ridiculous
The following stocks range from high risk/high reward to just plain stupid. This is a good time for me to remind you that this is not a recommendation to invest. This is for entertainment purposes only.
Biggest Losers in 2011
View Stocks Here: FSLR, ANF, NFLX, AIG, BAC, CVC, X, SHLD, CSC, GNW
Why This Might Work: These were the 10 worst performing companies in the S&P 500 in 2011. Maybe that means they are undervalued and ready to spring back in 2012.
Why it Might Not: Maybe there’s a good reason all these stocks lost at least 50% of their value last year. While these are very large companies, any one of them could go bankrupt at any moment.
Highest Dividend Yield
View Stocks Here: CPY, TNK, AGNC, IVR, AINV, CIM, SFL, CEL, RSO, VOC
Why This Might Work: These are the top 10 companies with the highest dividend yields as of Dec 27, 2011. If these companies pay out dividends like they did last year, it will be the highest dividend yield possible! This is an incredibly risky group of stocks, including four REITs.
Why it Might Not: REITs are inherently pretty risky, and some of the stocks here are doing so poorly that they might suspend their dividend and/or end up bankrupt.
10 Random Stocks
View Stocks Here: WEC, WEN, WERN, WEYS, WFC, WFD, WFM, WFR, WFSL, WG
Why This Might Work: I randomly picked a page off the Russell 3000 companies list and took the first 10 companies on the page. If you think the market is just a random crap shoot, then this is as good as anything else.
Why it Might Not: Maybe picking stocks takes more than just dumb luck.
Who’s Winning?
Of course we have to track performance and see who ends up with the best gain in 2012. Here’s the chart (which should update in real time) that shows which group of stocks is performing best.
The stocks are measured against their closing price on December 30th, 2011. The final score will be tallied on the last trading day of 2012 to determine the winner.
I’ll be doing a post monthly-ish to update the progress on everything and determine the most effective way to invest in 2012.
Who do you think is going to win?
Kevin McKee is an entrepreneur, IT guru, and personal finance leader. In addition to his writing, Kevin is the head of IT at Buildingstars, Co-Founder of Padmission, and organizer of Laravel STL. He is also the creator of www.contributetoopensource.com. When he’s not working, Kevin enjoys podcasting about movies and spending time with his wife and four children.
I’m inclined to go with the S&P 500, but I don’t think that will do the best in just one year (instead of over multiple years). Instead, I’m going to go with Vanguard instead.
You must have a lot of faith in those experts. I kinda like the “Worst in 2011”. Maybe I’ll do that for some of my personal investing.
I really don’t think any one way is the best way to go. The key is to find out what works for your personal investing/risk tolerance style and go from there. And to be honest, if the spreads continue to stay similar to the chart above, there really isn’t going to be a significant “winner” which just reinforces my point.
I like to go with the companies that increase their dividend payouts year-over-year and reinvest those dividends (like the Mergent Dividend Achievers lists used to compile). It shows that the companies are dedicated to rewarding shareholders rather than hoarding cash, and if the stock value goes down a bit, the yield goes up meaning I get more shares which hopefully means down the road, more total value.
The chart is only 2 days old. I have a feeling there will be some pretty significant differences over the course of a year. I’m pulling for the non-experts, but we’ll see what happens!
I do love dividends (especially in a Roth IRA) which is why I included the highest dividends stocks. I wanted to see what would happen with them.
I am going to guess the Random will win. 🙂
I would be the best result I could possibly hope for!
why did the last 3 groups start with $15K and not 5K like the others?
Great idea. Love to see the 10 random stocks outperform the rest. Not an indexer either so here’s hoping the experts lose.