While getting rid of old magazines recently, I ran into a Fortune magazine story from the turn of the century. Titled, 10 Stocks To Last The Decade, the column claimed that investors should bet on four “sweeping” trends that are sure to make money over the next decade: communications networking, entertainment, financial services and biotech. Simply identifying trends isn’t enough (niche ETFs were not available back then), so the magazine was kind enough to talk to hot shot fund managers to identify the following stocks that it said are well-positioned to capitalize on these trends (prices have been adjusted for subsequent stock splits):

Nokia (NOK: 54)
Nortel Networks (NT: $770)
Enron (ENE: $73)
Oracle (ORCL: $37)
Broadcom (BRCM: $118.50)
Viacom (VIA: $69)
Univision (UVN: $56.50)
Charles Schwab (SCH: 36)
Morgan Stanley (MWD: $89)
Genentech (DNA: $37.50)

A reader who followed this advice would have experienced a grievous loss of capital. Some of the stories are well-known: Nortel and Enron went poof! The technology names in the list have all declined substantially. Nokia is today trading at $5, Oracle is trading at $29; Broadcom at $38 and Charles Schwab at $12. Morgan Stanley survived the financial crisis but today trades at just $20. A little bit of financial archeology revealed what happened to the other names:

– The original Viacom split into Viacom Inc. (VIA) and CBS Corp. (CBS). Each share of the old VIA was split into 0.5 shares of VIA and 0.5 shares of CBS. The market value of the original shares today is $43.

– Univision, a Spanish-language broadcaster, went private in an all-stock deal in 2006 for $36.

– Genentech, the only winning stock in the list, was acquired by Roche for $95.

A $10,000 investment in each of these stocks in 2000 when the column was published, for a total of $100,000, would today only be worth $55,600 — a loss of 44% over a 11-year period. In the interest of fairness, it should be pointed out that the S&P 500 is down 10% in price level over the same time period. Granted, I did not bother to include the dividends that some of these stocks paid over the decade because it most likely won’t change the final conclusion: stock picks in magazines may be fun to read but the investment advice may not be worth the paper it is printed on.

This article has 20 comments

  1. Maybe it should have been “10 stocks, most of which will last the decade, barely”.

  2. That’s why all of the talking heads on TV add the disclaimer “consult with your own financial advisor before making any stock picks” at the end of every segment.

    It’s always best to avoid the hyped up stocks unless you perform your own due diligence and determine that the fundamentals are sound. It seems to me that the people who write these articles or make these statements are only looking for a short term bounce that would allow them to get out of their own positions in their portfolios.

  3. At first I found this line to be confusing:

    “A $10,000 investment in each of these stocks would today only be worth $55,600″

    If I am understanding correctly this line means this:

    A $10,000 investment in each of these stocks, for a total of $100,000 invested, would be worth a grand total of $55,600 today.

  4. @Michael: I was chucking over how the columnist picked a tech name (Broadcom) and pretended it was an entertainment company. Those were the days when so many people had most of their holdings in tech stocks (myself included).

    @Phil S: Good to hear from you. I agree that investors shouldn’t blindly listen to the media and should conduct their own due diligence.

    @0xcc: Thanks. I agree it’s confusing and I’ve reworded it.

  5. That’s an interesting exercise to figure out the returns.

    In all fairness, that time period was a market peak – I’m sure most other annual “top 10 stocks” lists would fare much better. Although they still probably wouldn’t average out to the return you can get from a passive portfolio or even a selection of blue chip companies.

  6. That’s why the top something pick are usually useless. But this example is terrifying, it could have been the top worst picks.
    Anyway magazines need to sell!

  7. Does your warning extend to Norm Rothery’s picks in MoneySense?

  8. @Mike: I agree that one anecdote doesn’t make up data. This was just a fun exercise but it does highlight the importance of not blindly following magazine stock picks.

    @Investment resources: I suppose you could do worse that just 2 out of ten stocks going bankrupt. It would be interesting to do a comprehensive study of magazine stock picks.

    @Dr. Dale: You are trying to put me on the spot, right? I’m sure Mr. Rothery would also tell you not to blindly invest in his picks. My position is more extreme: one should never invest based on magazine picks.

  9. @CC perhaps you should ask the editor if one should invest based on MS’s picks. And if not why are they published? Lastly, should anyone invest based on a blog’s picks?

  10. @CC I’m was baiting you because it was fun, but I will now stop.

  11. I’m surprised by the $7 price you put for Nortel. Nortel didn’t trade anywhere around $7 at the turn of the century.

    I used to work at one of the largest canadian discount brokers from 2000 to 2005, and I remember that Nortel’s peak price was an intraday high of $124.50 sometime during year 2000. Many years after, there was a REVERSE split 1-for-10 in 2006, which means that this $124.50 peak price became $1245.00 on a post reverse-split basis.

    My guess is that maybe the price posted in this turn of the century magazine was something like $70 and you adjusted it to $7 to take the reverse-split into account, but the $70 should actually be $700 on a post reverse-split basis, not $7. (Which is to say, those Nortel shares that we saw slowly and painfully drift down to zero were “post reverse-split” shares that were worth somewhere around $700 on a “post reverse split” basis at the time the magazine you mention was printed.)

    The end result remains the same, of course, as the stock eventually became worthless.

  12. Obviously most listen to gurus, as there are so many of them…everyone must need someone to blame

  13. @Martin: Good catch. I went back and looked at the column. The price of NT was $77. So with a 10-1 reverse split, the price back in 2000 would have been $770.

    @dave: Also, the “experts” who express sure-fire opinions are the ones that get most air time in the media. And these are the experts who are most often wrong.

  14. Good post. Shows the scary side of stock picking for sure.

  15. ETF’s have made the world so much safer for Retail Investors, a mixture of Dividend Stocks, Corporate Bonds, Emerging Markets,Gold,Trusts in a proper Asset Allocation will provide Cash Flow and steady growth.

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  17. I agree, People need to make an informed decision based on the criteria that they feel comfortable with when choosing to purchase a stock. Today with so much hype in regards to certain stocks it is easy to get caught up and make an uninformed decision.

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  19. Just to add my opinion… if it were me… :)

    I watch my stocks like a hawk and would have sold on the larger downturn in any of these. Most stocks don’t go to $0 overnight so even as a long term dividend investor I set my lower limit.

    Good post BTW that reaffirms that one should always do their homework and be attentive to their portfolio.

    My motos:
    Set a greed limit on bubble stocks.
    Never fall in love with a stock and ditch when the numbers look bad. You can always buy it back if the company just didn’t go poof!

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