Here's some heady investing advice that recently appeared in The Wall Street Journal:
The market may be on the verge of a revival in large-cap growth stocks. But this time don't expect a return to the exuberant days of the late 1990s. ... Discriminating stock-picking will matter more.
So you're saying that random three- and four-letter combinations won't work as an investing strategy anymore? Flabbergasting.
I'm Sarcasm, and I approve this message
There's a lot of filler that passes as coverage in the financial media these days, but the above advice may take the cake. Because here's the truth: Discriminating stock-picking always matters. At least that's the case if you want to make your fortune in the stock market over the next decade or more.
But let's back up. Because there was a time in the late 1990s when investors joked that a monkey with a Ouija board could identify big winners in the tech sector.
And the joke wasn't so far-fetched. Take a look:
|
Company
|
Return, 1997 to 1999
|
|
Authentidate (:ADAT)
|
250%
|
|
Exar (NASDAQ:EXAR)
|
280%
|
|
Orbotech (NASDAQ:ORBK)
|
709%
|
|
S1 (NASDAQ:SONE)
|
1,424%
|
|
TriQuint Semiconductor (NASDAQ:TQNT)
|
533%
|
|
ViaSat (NASDAQ:VSAT)
|
454%
|
|
Zix (NASDAQ:ZIXI)
|
500%
|
Return data provided by Capital IQ, a division of Standard & Poor's.
From Authentidate to Zix, there was a winner at every letter of the alphabet. In all, 187 tech stocks would have more than tripled your money in just three years. Discerning stock-picking was not a requirement to have accumulated serious wealth in those go-go days.
Of course, those go-go days are long since gone.
You maniacs! You blew it up!
Discerning stock-picking is back in a big way. Of those 187 tech triples, just 27 have beaten the market over the past eight years (by returning a mere 8%). Another 114, on the other hand, have posted a 50% or greater loss during the same time period.
In other words, if you weren't among the discerning investors who bought into lasting winners such as Daktronics or Apple, then any gains you might have earned in the late 1990s may be long since gone.
Because here's the rub: Even random strategies may work for a few months or even a few years. But fortunes aren't made in a matter of months or years. They're made over decades of regular saving and investing. As a result, the only way for the individual investor to make a fortune is to employ a time-tested strategy that will hold steady in both good times and bad. That's how Shelby Davis and Warren Buffett built their massive fortunes, and that's how you can do it, too.
So, if you want to become a discerning investor, before purchasing any stock, ask yourself: Is this a company I'd be willing own for the next 10 years?
Human see, human do
At our Motley Fool Stock Advisor investing service, Fool co-founders David and Tom Gardner are nothing if not discerning stock pickers. By identifying public companies that are well-managed, take a long-term view toward value creation, focus on dominating and growing their economic niche, and are built to last 100 years or more, David and Tom have helped our subscribers earn greater than 60% average returns. That's against just 22% for the market over the same time frame.
You can get started becoming a discerning stock-picker by joining Stock Advisor free for 30 days. Because, trust me: It's always mattered.
This article was originally published on April 23, 2007. It has been updated.
Tim Hanson does not own shares of any company mentioned. Like Troy McClure, the Fool's disclosure policy hates every ape it sees ... from chimpan-a to chimpanzee.
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