The turn of the calendar means the financial media’s “Where to Invest Now” guides are, once again, on full display. This year’s market guides offer “Top Picks from Top Pros” and other insights so that readers may “Make More Money in 2016.” After a lackluster 2015 for a globally-diversified portfolio, what could better supercharge your returns than a fresh batch of hot tips from leading experts?
Don’t believe what you read: Market forecasts are promoted to fuel magazine sales, not protect and grow your piggy bank. Investors would almost certainly be better served using these magazine pages to line a chicken coop or start a warm winter fire. Lest you think we’re being too harsh, here is a review of three major publications’ predictions made at the start of last year:
To find the best stocks in 2015, Money sought out six managers who outperformed over the previous five years. In a market that had been good to most investors, Money claimed, these past winners had been great.[1] As it turned out, their picks proved great only in reminding us that past performance is, indeed, no guarantee of future results: Brinker International fell 20%, West Marine sank 31% and Identiv Inc. plummeted 85%. From recommendation date through year’s end, the top picks from Money’s top pros dropped an average of 7%, while the total U.S. stock market rose 3%.
To make money in a world likely to see slowing economic growth, Fortune magazine turned to five top-tier investing authorities.[2] This elite group, which collectively oversaw nearly $5 trillion in assets, recommended twenty-five stocks most likely to profit in 2015. Unfortunately for followers of these experts’ recommendations, winners Brembo (+45%) and Allegiant Air (+35%) were more than offset by losers Yandex (-40%), Shutterstock (-55%) and Navistar (-74%). While a fully-diversified basket of global stocks retreated 2% over the period measured, the concentrated bets made by Fortune’s panel of experts fell 15%.
In a period of low interest rates, Forbes recommended five higher-yielding investments to satisfy investors’ appetite for income. Glowingly described as “unfixed income” capable of providing bond-like payments which grow with underlying profits, master-limited partnerships (MLPs) were touted by Forbes as prudent choices to weather the collapse in oil prices.[3] If Forbes’ readers were hungry for income at the start of 2015, they’re now on the verge of starvation: The best-performing MLP on Forbes’ recommended list lost 13% while the worst plummeted 43%.
Sadly, following such tabloid advice is all too common. Hungry for outsized returns, investors habitually bet on just a few stocks or the latest five-star fund, only to find out the market has left them behind. Undeterred, these gamblers continue to roll the dice year after year, hopeful their fortunes will turn.
Wise investors, instead, focus on what they truly can control—their asset mix, the costs they pay and the taxes they face. Above all, they control their behavior by sticking with a sensible strategy and plan when it seems uncomfortable or unfashionable to do so.
[1] DeRousseau, Ryan. “Top Picks from Top Pros.” Money, January/February 2015.
[2] Gandel, Stephen. “Where is Opportunity Lurking?” Fortune, December 22, 2014.
[3] Dobosz, John. “MVPs Among MLPs.” Forbes, December 29, 2014.