It’s that time of year again.  Finance Magazines have begun publishing their “Stocks You Must Buy NOW!” lists along with their “Best Stocks to Own in 2012” articles.  Every time you see one of these the question that should go through your mind is “What about last year’s list?”  Thanks to Google, that’s pretty easy to do.  Let’s take a look at the list from a popular magazine/website CNN/Money/Fortune.


10 Best Stocks to Own in 2012

  • Apple
  • Caterpillar
  • Enbridge Energy Partners
  • Goodyear Tire
  • Halliburton
  • Intel
  • Johnson Controls
  • Lockheed Martin
  • Microsoft
  • Royal Bank of Canada

All large companies, and all but one are domestic, so it should be appropriate to compare to the S&P 500, an index of large US stocks.  That’s all well and good, but not very interesting unless you actually believe these guys have the ability to predict the future.  In evaluating that question, let’s take a look at exhibit A:

10 Best Stocks to Own in 2011

These are returns MINUS dividends (to make it easier on me) and we will compare them to the Dow Jones and the S&P 500, again MINUS dividends, which are appropriate indices given that they are all large cap stocks.

  • Mosaic -33.96%
  • Agrium -26.86%
  • Dow Chemical -15.76%
  • Transocean -44.77%
  • Royal Dutch Shell 9.45%
  • Lennar  4.80%
  • East West Bancorp 1.02%
  • Royal Caribbean -47.30%
  • Entropic -57.70%
  • Apple 25.56%
  • Total of a portfolio divided 1/10th into each of the stocks  -18.55
  • Dow Jones Industrial Average  5.53%
  • S&P 500: 0%

Well, what does this tell us?  First, that Jon Birger can’t pick stocks.  He was the one that wrote the article a year ago.  Guess who wrote the 2012 article?  Yup, same guy.

Second, picking stocks is hard.  I don’t pretend I can, but for some reason I take just a little bit of pleasure in seeing that hardly anyone else can either.  Think about it.  If they could, they’d be running a hedge fund instead of writing for Money.  Actually, it would probably be even more profitable to just keep quiet and invest their own money rather than run a hedge fund.  I’m confident that if there really are people out there who can predict the future, they aren’t telling anyone else about it.

Third, don’t believe anything you read in the financial media, especially predictions of the future.  This is financial porn at its best.

Last, stocks were a pretty crappy investment this year, but if you had to be in them, large growth stocks were the place to be.  It’s been a long time for these babies.  They’ve been beaten down ever since the tech stock meltdown. Compare the Vanguard Growth Index Fund return of 1.87% to the Vanguard Small Value Index Fund return of -4.16%.

Predictions are a funny thing.  I sometimes think I know what’s going to happen.  I’ve made it a habit to actually write these things down.  I won’t say I’m never right, but I’m definitely not right more than 50% of the time.  I suggest you do the same.  In fact, just for fun, why not post a prediction in the comments section?  We’ll drag it up next year at this time just to see how you did.