Which Expert Got the Most Right?
Expert Portfolio Performance:
How About When You Compare This to An Index Fund?
Welcome to another update on my stock portfolio and whether the experts managed to guide us toward good investment picks. Each year, I set aside a portion of my portfolio for individual stocks to gain experience and hopefully grow my wealth. My ultimate goal is to build a stable portfolio of dividend-yielding stocks that can provide a steady income stream in the future.
Earlier this year, I noticed that major financial websites have “analyst opinion” sections predicting stock performance for the next 12 months. Although I usually pick stocks based on long-term earnings forecasts, dividend yields, PE ratios, and other criteria, I thought it would be fun to track and compare expert predictions over the year.
Could any of these financial sites predict the best-performing stocks out of my selection of 10? Could they outperform my portfolio or even the S&P 500 index? Let’s find out in this nine-month check-in.
I gathered analyst opinions from four major financial websites. Since their rating systems vary (some use a 1-5 scale, others 1-10), I created a simple, color-coded ranking system. Green and orange indicated favorable recommendations, while yellow and red suggested poor choices.
As of November 13, here’s how our stocks have performed:
The standout stock has been Johnson & Johnson with a 23.4% increase, correctly predicted by 3 out of 4 experts. On the flip side, the worst performer is AFLAC Inc, which saw a 5.95% loss—unfortunately, all the sites got this one wrong.
Which website had the most accurate predictions so far?
To analyze it differently, suppose I had picked my stocks and only bought those approved by the financial websites. If only 5 out of 10 were recommended, I’d only buy those 5. Here’s what would have happened:
My portfolio return is 9.4%. Interestingly, even though Fidelity had the most incorrect picks, their correct ones yielded nearly 1% higher returns than my portfolio.
Would any hypothetical portfolios have beaten the S&P 500 index so far?
Sadly, no. The S&P 500 index, adjusted to match my stock purchase dates, stands at a 14.4% return for the year. My portfolio is at 9.4%. So, if I had chosen the easier route with an index fund, I’d have about 53% more earnings now!
Right now, Yahoo and MSN are roughly 90% accurate with their predictions. However, I wouldn’t base a portfolio solely on their opinions. A better strategy is to make your selections and use their recommendations to confirm your choices.
What’s the best approach? Investing in the S&P 500 consistently outshines other strategies. As John Bogle and many advisers recommend, unless you have exclusive insights, you’re likely better off investing in a stock market index fund than trying to outsmart the market.
Looking ahead to 2015, experts predict only a modest 2% stock performance increase. If that holds, I might revisit the Dogs of the Dow strategy. By investing in these Dow Jones stocks with the highest dividend yields, I could aim for a 4% dividend return plus a potential 2% gain, which isn’t too shabby.
