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“Top 10 Stock Picks” for 2019

January 3, 2019

Tis the season for “Top 10 Stock Picks.” Almost every financial publication and commentator provides top 10 picks. Many publications provide them from multiple “experts.” I have some opinions about this.

It is all bull doody! The picks make for interesting reading and some of the explanations are clear and you can actually learn from them, but at the end of the day they are nothing more than guesses. Some provide “report cards” on the previous year’s results and few beat the indexes. Invariably some picks do very well, but in the aggregate, the indexes are rarely beat. Even if they beat the index, the portion of a portfolio allocated to the top picks is usually not significant so the appreciable effect on the total portfolio is not meaningful.

Further, the Top 10 picks seem to indicate that choosing individual stocks is a good way to invest. It might be, but I think a better way for most people and certainly nonprofessional investors is to invest through a broad based mutual fund. If you are not a do-it-yourselfer and use an investment manager, then these picks are meaningless unless the person doing the picking is that manager. Your manager is a professional entrusted by you to oversee and handle your portfolio based on criteria including your goals. As long as you employ them, let them do the picking. For everyone else, I suggest not picking individual stocks, or even the grouping of 10 suggested by the prognostications, but sticking to the larger broad based funds which include index and exchange traded funds.

One other comment is that if you put ten of the articles together I suggest that of the 100 stocks only about 20 might appear on most of the lists and that those 20 are likely to be included in the top 40 of the S&P 500 index and just a little fewer in the Dow Jones Industrial Average and the NASDAQ combined. If that‘s the case, why not invest in those indexes rather than the individual stocks? If you purchased every stock on the aggregate lists, you would then have your own mutual fund. Are you confident that this fund could beat out the larger mutual or index funds.

Other issues to consider are trading costs, timing if an investment no longer belongs on the Top 10 list if updates are provided, which they usually aren’t, and even the timing of the initial purchase which is already delayed from the time the article was written or picks made. In many cases the articles were written before the December drop into a bear market. Have the guesses been updated since then?

One other thing. If these are top 10 picks for the year, does it mean that they would have to be sold on the last day of the year so you would have cash available to acquire the next year’s top 10? And if the picks are right, you would have tax costs possibly at short term capital gain rates which doesn’t fully make sense to me. Of course the winners remaining on the new list would not be sold, but that can’t be for too many stocks since it would require continuous extraordinary growth, which is unlikely for most stocks.

There is still more, but it can really get nutsy. The above reflects some of my opinions about the ongoing annual asset manager and commentator sporting event. Take it for what it is – a sporting event!

Enjoy, and have a Happy, Healthy, Prosperous and Smart New Year!

Ed Mendlowitz

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