${Html.ActionLink("My MarketWatch", "index", new { controller = "composite", area = "section", page = "my" })} | !{Html.ActionLink("Sign out", "LogOff", new { area = "User", controller = "Account" }, new { id = "signOutLink" })}
Welcome, ${UserDisplayName}
Log in
Become a MarketWatch member today
Portfolio Insights by Brett Arends Archives | Email alerts
Jan. 4, 2012, 12:01 a.m. EST
By Brett Arends, MarketWatch
BOSTON (MarketWatch) "” It's the time of year when the geniuses on Wall Street tell you the best stocks to buy for the year ahead.
So-called "analysts' top picks" are a popular topic on the Street of Shame. For some people it's just a parlor game. Others pay close attention. These are, after all, supposed to be the brightest and best-informed experts. Analysts are paid hundreds of thousands, maybe millions, a year. They are recruited from the top business schools. They spend months building complex spreadsheets and analyzing securities. They go to company away-days and sit through interminable presentations. They don't just look under the hood "” they take the stocks apart and put them back together again. They know the balance sheets, income statements and cash flows, the industry trends and competition, inside and out.
So how good are their picks?
To give you some idea, I ran the numbers. I looked at how Wall Street analysts top picks fared last year.
One of Wall Street's classic strategies, known as the Dogs of the Dow, enjoyed a second consecutive year of success after underperforming over the previous decade, Steven Russolillo reports on Markets Hub. Photo: AP.
A year ago I spoke to the good people at Thomson Reuters, who track analysts' recommendations. I asked for all the recommendations across the Standard & Poor's 500 index /quotes/zigman/3870025 SPX -0.02% .
Then I scanned for the top 10 "” the stocks with the highest amount of "buy" and "outperform" ratings. These were the cool kids on the block, the best of the best of the best. Supposedly.
They ranged from big names like Apple and Google to Thermo Fisher Scientific /quotes/zigman/243451/quotes/nls/tmo TMO -1.64% , Agilent Technologies /quotes/zigman/216117/quotes/nls/a A -1.15% , Celgene /quotes/zigman/69584/quotes/nls/celg CELG -1.03% and R.R. Donnelly & Sons /quotes/zigman/71129/quotes/nls/rrd RRD +0.40% .
How'd they do?
If you had invested $10,000 in each of these stocks a year ago, banked the dividends, and cashed out at the end of the year, you'd have actually lost money. You'd be down 3.5%, even before trading costs and taxes, meaning you'd have $96,500 left of your stake.
Meanwhile the S&P 500 overall ended the year even. In other words, you'd have been better off just owning an index fund.
So much for Wall Street!
Six of the "top 10" stocks actually lost you double-digits. The median fell 12%.
As I noted a year ago, this is something of a pattern: Over the previous five years "” you can now make that six "” Wall Street analysts "top 10" stock picks have actually earned you slightly less over time than the index.
Out of whimsy, I also looked at the reverse story: Wall Street's most hated stocks, the ones the analysts told you to avoid. I screened the Thomson Reuters data for the stocks with the most "sell" recommendations and the fewest "buys."
It produced an interesting miscellany, from Brown-Foreman /quotes/zigman/220587/quotes/nls/bf.b BF.B -1.17% (maker of Jack Daniel's) to drugs giant Eli Lilly /quotes/zigman/232185/quotes/nls/lly LLY -2.11% , to retailer Sears Holdings /quotes/zigman/95136/quotes/nls/shld SHLD -0.48% , to Warren Buffett's Berkshire Hathaway /quotes/zigman/219651/quotes/nls/brk.a BRK.A -1.02% .
So how'd they do?
They fell 4.3% on average. In other words, the 10 stocks that analysts loved the most beat the stocks they hated the most by an average of less than 1%.
Wow! Those analysts sure are worth the money!
Most of that loss came from two disasters "” AIG and Sears, both of which plunged by more than a half. Five of the "most hated" actually rose, during a flat year for the markets. Eli Lilly made a 25% profit.
Should you buy Wall Street's top stocks for 2012?
Romney edges Santorum in Iowa caucuses
U.S. stock futures edge down; euro zone in focus
How to play the January Effect
10 themes for 2012
Netflix shares soar (No, this is not a typo)
Romney's focus on deficit ignores real problems
Is Yahoo still a media company?
Obama finally picks a fight with the Republicans
Fraud and Your 401(k)
January Should Be Great for Small-Cap Stocks
Trading Strategies: Primary Concerns
Asia Week Ahead: China, North Korea in Spotlight
Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S... Expand
Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S. He has received an individual award from the Society of American Business Editors and Writers for his financial writing, and was part of the Boston Herald team that won two others. He was educated at Cambridge and Oxford Universities, and has worked as an analyst at McKinsey & Co. He is a Chartered Financial Consultant (ChFC) and Accredited Asset Management Specialist (AAMS). His latest book, "Storm Proof Your Money," has just been published by John Wiley & Co. Collapse
Media Web
Tebow-mania, R.I.P.
London Eye
What would it take to burst gold's price?
View from Jerusalem
Israeli agritech buyout defies grain markets
Read Full Article »