Picking Good Stocks at the Right Time Is How You Beat the Market? No Problem, Right?

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July 10, 2008 12:08 PM EDT by Cody Willard

Picking Good Stocks at the Right Time Is How You Beat the Market? No Problem, Right?

Though I've been preaching caution for the last year or so after being a rather big bull during my hedge fund days since 2002, I want to drive home my oft-repeated point about the importance of picking great stocks and not just putting money into the broader markets. I like to focus on buying the best stocks possible, and then getting more aggressive or less (or even getting bearish as I did on Google back above $700 here in these posts), depending upon the movements of price over time.

And as I mentioned in that last post three times and hundreds of times over the years on these pages, time frame is very important.

For example, though I like Pfizer these days as both a trade and investment now that it's down to $18 this summer, Pfizer has been a horrible stock for just about any time frame in the last decade. If you put $10,000 into Pfizer in 1998, it'd be worth about $8000 including dividend re-investments. $10,000 into the S&P 500 over the same time frame, would be worth about $12,000 if you reinvested all dividends back into it. Putting that ten grand into Microsoft ten years ago would have resulted in about $10,000 or so including dividend re-investments. And $10,000 in Apple in 1998 would be worth about $200,000.

But let's talk time frame again. How about an investment in each of these stocks in 1985? That $10,000 Softee investment would be worth $2.5 million. Yeah, MILLION. (Which is down from the $6,000,000 that $10,000 had turned into at the top of the dot com bubble nine years ago...)

And from a year ago today:

In all the above cases, these "large cap" individual stocks performed far differently than the broader markets and each other. Picking good companies and paying a good price for them and knowing your time frame matter. Points driven?

Of course, actually executing on these points is another matter entirely...

4 Comments

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Dana Swan

2 weeks ago the Royal Bank of Scotland and Morgan Stanley both warned their clients to prepare for the collapse of the US dollar within 90 days. This will cause the collapse of the equities and financial markets. Combine that with the impending war between Israel and Iran causing oil prices to skyrocket and this does not appear a good time invest in equities....

July 11, 2008 at 11:09 am

Dennis White

Get out of the market!! When I turned 60 I withdrew my 401k's and bought silver. As of this morning I have made approximately 50% in about a year and a half. Not paper mind you, but the actual metal. Paper securities are like the dollar, a promise to pay. A promise that may or may not be kept. I have a comment that I have never seen addressed concerning the stock market. There has been a lot of concern over the retiring baby boomers on the Social Security system. How about the stock market? Millions of baby boomers, the most prolific generation placing funds in 401k's and mutual funds, will be withrawing those funds at a heavy rate as they reach 59 and a half.( if they are smart) The younger grenerations are not placing anywhere near the percentage in these rescources. Not becasue they don't want too, just that with runaway inflation, they are lucky to maintain their basic needs. All those millions of baby boomers, the real backbone of the market, leaving the market is bound to have a serious effect on the market and the overall economy.

July 11, 2008 at 10:48 am

Justin

get get of equities (unless you are shorting them, or buying energy/commodities stocks). they will underperform commodities over the next 5-10 years. Jim Rogers baby. Find out who he is and what he has to say if you don't know of him. History repeats itself. Ask yourself how people made money in the 1970's. Industrial metals are about to make a run (they've been hammered but will come back in a bull frenzy), as is gold. It'll go to $1200 by the end of this year, if not more. Stagflation is here. Protect your wealth from the falling dollar.

July 11, 2008 at 9:49 am

joey45

Cody, I really hope you're doing better! This post reminds me of your mantra "Sloooow Money!" This post should really drive home that old truism. The careful tortoise always wins in the end. That is, unless he foolishly tries to walk across a busy freeway just to mate! (metaphor for the unwary day trader?) = ) Joey45

July 11, 2008 at 8:20 am

about this blog

Cody Willard is an anchor on the FOX Business Network. Willard is also the principal of an investment management company. He was a long-time featured columnist for the Financial Times and TheStreet.com as well as a regular featured economist and stock picker on CNBC's ''Kudlow & Company."
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