1 Market-Thrashing Stock Prediction

Late last year, I made one market-thrashing stock prediction.

Normally, I'd be quite pleased, but I made five stock predictions.

What happened?
The article in question was "5 Stocks to Sell for 2011."

In it, I wrote the following: "I've identified five stocks that are excellent sell candidates, two of which are in my personal portfolio."

The volatile results over the past year have surprised me and hopefully will make me (and you!) a better investor. I've also updated my outlook on each of the five stocks, but I'm getting ahead of myself.

Before we look at where the stocks are now, let's see where they were halfway through the year. It was ugly!

Company

Return as of June 30

Wynn (Nasdaq: WYNN  ) 39%
Netflix (Nasdaq: NFLX  ) 42%
Vonage (NYSE: VG  ) 79%
Whole Foods Market (Nasdaq: WFM  ) 25%
Tempur-Pedic (NYSE: TPX  ) 70%
Average 51%
S&P 500 (INDEX: ^GSPC  ) 6%

Source: Yahoo! Finance. Returns based on starting date of Dec. 23, 2010.

Remember, I said to sell these stocks. Collectively, they were up just over 50% in a nearly flat market. I was losing to the market by 45 percentage points!

I was losing by so much that I was almost looking forward to writing this article as a tale of epic failure. But as I look at the sell picks now, a full year after I made them, the story looks different. Somewhere in the darkness, the gambler, he broke even:

Company

Return as of Dec. 22

Wynn 5%
Netflix (60%)
Vonage 0%
Whole Foods Market 35%
Tempur-Pedic 37%
Average 3%
S&P 500 2%

Source: Yahoo! Finance.

This is a pretty interesting snapshot of the stomach-churning nature of the stock market. Notice that the market was basically flat from the six-month mark to the one-year mark. Yet, the individual stocks had wild rides, led by Netflix's 102-point and Vonage's 79-point swings. My list went from an utter disaster to a "meh" prediction.

Before I give my thoughts on the stocks themselves, let me share what's struck me. The obvious point is that the stock market is volatile -- and individual stocks are amazingly so. Netflix's meteoric rise and fall from grace is the stuff of screenplays. In three months, it went from over $300 a share to less than $100. Sure, it made some missteps with Qwikster and the like, but Netflix faced similar opportunities and threats the whole time.

Digging deeper, we have to think very hard as investors when we sell our winners. In my article last year, I highlighted Whole Foods and Tempur-Pedic as stocks I personally own. I wrote, "At today's prices, I prefer the stocks of Whole Foods and Tempur-Pedic to those of Wynn, Netflix, and Vonage but come January I will be seriously considering selling at least part of my positions in each."

When the New Year came, I stayed true to my promise. I decided to sell part of my Whole Foods position (I had already sold part of the Tempur-Pedic position). For me, it was a compromise on the classic growth stock problem -- the choice between (1) selling a stock that looks fairly-to-richly-valued and possibly missing out on growth-fueled gains, or (2) holding onto a stock that could come crashing down when growth moderates or the business suffers setbacks.

That sell-a-portion compromise works well for my emotional make-up when dealing with a growth stock winner in my portfolio. But I still struggle with whether it's the best course of action. This strategy has hurt me so far on Whole Foods and Tempur-Pedic, but if I had been a Netflix investor, it could have saved me a ton.

It comes down to this. The better the business prospects of the company, the harder we should think about selling because of valuation. So I will continue to hold my remaining Whole Foods and Tempur-Pedic shares going into 2012.

Wynn -- which is my favorite casino company because of the management of founder Steve Wynn -- now has the cash flows and extra year of operational evidence to discourage a sell call from me. In fact, it may warrant a second look as a buy candidate. Even though Wynn has been flat over the last year, I regret making it a sell candidate for 2011 because I do admire the business, risky as it is.

Meanwhile, I'm not a big fan of the business prospects or Netflix or Vonage. Of course, Netflix is now offering bulls a cheaper valuation and bears less reason to hate. As for Vonage, I do have to give it some credit for finally becoming profitable on both an earnings and free cash flow basis over the last 12 months.

I won't be going out to buy shares of Netflix or Vonage anytime soon, but I have no strong follow-up predictions for 2012 on any of these five. I'll leave the bold prediction to our chief investment officer. He identified one company as the No. 1 stock for the next year. Find out which stock in our brand-new free report: "The Motley Fool's Top Stock for 2012." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this legendary company.

Anand Chokkavelu owns shares of Whole Foods and Tempur-Pedic. The Motley Fool owns shares of Whole Foods Market. Motley Fool newsletter services have recommended buying shares of Whole Foods Market and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (34) | Recommend This Article (78)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 24, 2011, at 12:06 AM, dolvlob wrote:

    "My list went from an utter disaster to a "meh" prediction."

    If the best your prediction could do was to lose 3% after cherry-picking the evaluation date, then I think you give yourself too much credit. Only one of your predictions turned out right, and that was a year later. Admit it. Your list was an utter disaster.

  • Report this Comment On December 24, 2011, at 10:36 AM, TMFBomb wrote:

    @dolvlob,

    The article was "5 Stocks to Sell for 2011" and was pubbed Dec. 23 of last year...so a year later I'm looking back (no cherry-picking here).

    Re: performance, I'm not happy with it. My goal is to beat the market...these picks did not do so. As you pointed out, Netflix's fall allowed the overall return to get back to mediocrity.

    I'm still glad I did the predictions and more glad I looked back because not having a feedback loop dooms us to repeat our mistakes.

    Fool on,

    Anand

  • Report this Comment On December 25, 2011, at 1:31 PM, Fumaten wrote:

    Anand,

    Thanks for the carriage to share with your mistakes.

    As for me, in this volatile market conditions,I evaluate my moves daily by the help of some algorithmic systems following smart money movements between markets such as: I Know First system,

    Thinorswim system

    Happy Holidays!

  • Report this Comment On December 26, 2011, at 4:15 PM, Regarded49 wrote:

    We all make mistakes, however I feel your motivation was to sell out of fear. That is the absolute worst kind of action. Fear and greed will wipe everyone out.

    AlanLee

  • Report this Comment On December 26, 2011, at 5:18 PM, jm7700229 wrote:

    I'm getting tired of the bait and switch. The headline promises a prediction. It doesn't tell me that I will have to go through all the crap to get to it. I subscribe; why do I need to keep answering these questions to get the information you promise?!

  • Report this Comment On December 26, 2011, at 5:37 PM, kellerrs wrote:

    So, in other words, throwing darts at a print-ouf of the Dow to select stockes, would have probably yielded comparable results? This exercise doesn't really illustrate any inherent value in the author's ability to invest.

  • Report this Comment On December 26, 2011, at 5:43 PM, maniladad wrote:

    Anand, I'm assuming that you sold your Whole Foods and Tempur-Pedic at a profit. That is never a bad thing. No one hits the highs to sell or the lows to buy every time. One of the hardest things to learn is not to beat yourself up when a stock goes higher after you sell or lower after you buy. You're right that it's important to look back and see how you might have done better but the next time you encounter the same situation, holding might turn out to be a disaster. No matter how well you research and analyse, you can only moderate, or at best minimize, risk, not eliminate it and that's an important element in maximizing profit. Recognizing that, there's a lot to be said for investing in dividend-paying stocks instead of growth stocks. Even knowing that, right now I'm trying to educate myself on options; it's never too late to learn a new way to lose money.

  • Report this Comment On December 26, 2011, at 5:44 PM, phillyarchitect wrote:

    I too find the way the articles are written highly annoying. They promise this exciting piece of information but then they bury it deeply into a long rant of prose that is just too cute for words. I usually have to read it several times to figure out which stock is being recommended and which is being panned. Also most of the articles are ads for one of the MF Services or the other. To be asked to subscribe to a service that I already am subscribed to really drives me up a wall.

    Dude get to the point in the first paragraph, and read Elements of Style to try and clean up your prose. I'm a busy man and don't have time for this cutesy jokey sloppy writing. It would be helpful if you improved your interface so that it would know if someone is a subscriber logged in, and wouldn't keep asking him to subscribe again.

  • Report this Comment On December 26, 2011, at 6:09 PM, bfsteck wrote:

    I agree and am annoyed by the headline leading to endless hunting for what is so plainly offered. you have to read these articles over and over and still not get it. Yes...GET TO THE POINT !!!!

  • Report this Comment On December 26, 2011, at 6:55 PM, bretco wrote:

    Philly and beefsteak are right on,

    I do hope someone pays attention to their comments, it would increase Foolish thought

    and a little more appreciation.

    Get [to] the point !!!!???!!!!

  • Report this Comment On December 27, 2011, at 4:24 AM, Sotograndeman wrote:

    Must add my own frustration about this article - and many like it from TMF.

    On the topic, you got what you deserved with predictions. As Buffett put it "you can predict what but not when". Problem is, you got neither right.

  • Report this Comment On December 27, 2011, at 8:34 AM, ngannet1221 wrote:

    I have the same complaint about many Fool articles, that cleverness is more important than clarity. It seems to be editorial policy at MF to write in this style.

    Too clever by half, too cute for words [@philly] , annoying ... you guys at MF are burying the points of your articles.

  • Report this Comment On December 27, 2011, at 10:44 AM, mdtopper wrote:

    Stop complaining fools.

    This author offered a prediction (last year) with a follow up on how (and why) that prediction was partially wrong and partially right.

    He also gives some insight into the human nature aspect of the whole investing thing and why he chose to act th3e way he did.. he also explains how he felt half way through the year when the prediction was apparently far off base.

    Follow his advice, don't follow his advice. No matter. But learn from the story.

    I did.

  • Report this Comment On December 27, 2011, at 11:23 AM, jrj90620 wrote:

    Just shows that short term trading is,not only stressful,it's usually not profitable for most people.Notice how you never read stories about people who became Billionaires doing short term trading.Buffett,Gates,Jobs all made it over the long term.Best to become a partner in great companies by investing in them.NOT trading them.

  • Report this Comment On December 27, 2011, at 12:31 PM, swiver wrote:

    I havent seen an MF issue of the 3 that I take that couldnt be cut into 1/3 or its length. And a lot of the other company's verbiage is even worse. Why can these guys remember the basic rule of English - write what people can understand, and keep it short and to the point.

    Someone once told be that if a stock doubled, sell a third of it.

  • Report this Comment On December 27, 2011, at 12:31 PM, Synchronism wrote:

    Okay, so I read both this article and the one you made last year.

    Since I'm too swamped working on one of your earlier recommendations in the year and therefore do not have the time to check out the historical news reports for Wynn, Netflix, Vonage, Tempur-Pedic, or WFMI, I want to know what sort of news came out for these five companies.

    Hopefully this information (if you devote some time to this) would tell us readers if you breaking even was a matter of the market correcting itself in light of your somber forecasts OR a direct consequence of all the macroeconomic crap being hurled by many of the idiots playing the game. I'm aware Foolish analysts typically do not gaze at the market now and then. (Well, I know at least two of you don't. :D)

    Just to add icing to that cake, what were your returns by August 15?

  • Report this Comment On December 27, 2011, at 3:48 PM, crca99 wrote:

    I too am tired of mystery headlines, followed by info that has to be reread before understanding, then the pitch to do more clicking to get real point, if any.

    I would have been happy to read how sickening market volatility left you back where you started. I relate to that.

  • Report this Comment On December 30, 2011, at 11:56 AM, DS31 wrote:

    How could the "complainers" miss the point of this article? Anand says he made one market thrashing stock prediction last year (in this case, it was NFLX which was down approximately 60% year over year...well done!). But the problem, as he acknowledged in the second sentence, was that he made 5 TOTAL predictions...not just one. So his aggregate recommendations underperformed the market by a small margin.

    Therefore, as he reviewed his own performance, he recognized what there is to learn from this experience. Great! I love to learn from other people's experience. And who else but MF assesses their own picks as well? And so publicly?

  • Report this Comment On December 30, 2011, at 12:49 PM, FrugalTurtle wrote:

    I think the main point here is that we pay for MF advice and that is supposed to be better than the market average, in which case this was not. It's good that you evaluated your performance in a mostly objective manner, but my goal of making money through investing is not aligning with MF's current performance, I'll have to try elsewhere for now. Good luck

  • Report this Comment On December 30, 2011, at 1:31 PM, DS31 wrote:

    @FrugalTurtle...good luck looking for the magic. But it doesn't exist.

  • Report this Comment On December 30, 2011, at 1:45 PM, rickogle wrote:

    I agree with many other of your subscribers (crca99 for example) about your extreme headlines and having to read through a bunch of hyperbole to get to the meat of the article. You are better than that--so stop it!

    mtn7734

  • Report this Comment On December 30, 2011, at 5:51 PM, JohnnyYuma13 wrote:

    As I am paying for your product I have a RIGHT to complain when it doesn't deliver.

  • Report this Comment On December 30, 2011, at 6:32 PM, grambo45 wrote:

    I think it was natural to assume the "market-thrashing Prediction" in the headline referred to a prediction for NEXT year!! Maybe that's just me.

    I agree with the other Fools here who have waded through endless verbiage looking for nuggets of wisdom ..... often to find we have to open yet another report and repeat the process.

    I'm getting spammed daily (and more) for various Fool services I don't want and just when I think they're done with one, I get a "one last chance, ends at midnite, we really mean it this time !!!" email.

  • Report this Comment On December 31, 2011, at 4:15 AM, HunbleTourist wrote:

    Brave article. Don't quit the day job though..!

    Happy New Year and don't lose your shirt this time...!!

  • Report this Comment On December 31, 2011, at 9:26 AM, fairtrader108 wrote:

    I completely agree with phillyarchitech about all the bullcrap that you have to read thru to finally find the crux of the matter. Ma fed up.

  • Report this Comment On December 31, 2011, at 11:17 AM, rschulthies wrote:

    I was affected by your comment on Wynn & management. Historically, I was involved in bank lending to entities associated with Wynn. I am quite dated now but I respected him as an individual & promoter but not as a manager.

  • Report this Comment On December 31, 2011, at 11:22 AM, Joemit wrote:

    I agree completely with philly, bfsteak, jm et.al. who are sick and tired of the crap from MF.

    Learn to pyramid an article and get to the point, have the rest explain.

    The headline reads "One Market Thrashing..." yet we can't even access that prediciton without going through more crap.

    I still don't have it

  • Report this Comment On December 31, 2011, at 2:28 PM, TMFBomb wrote:

    All,

    Thanks for reading and thanks for the comments.

    One thing I'd like to clarify is that The Motley Fool has a free website and pay newsletters like Motley Fool Stock Advisor. My thoughts and picks are my own and reside on the free site. As the "Motley" suggests, my opinion may differ from other Motley Fool analysts and newsletters.

    The market-thrashing stock prediction I made was for selling Netflix last year. But two of my five sell predictions handily lost to the market.

    -Anand

  • Report this Comment On December 31, 2011, at 4:17 PM, 2idiot1 wrote:

    So your losers only one was a loser the others were winners let the choices ride and lets see how they do in 2012 or are you going to go off on some Marvel whopdedo again

  • Report this Comment On January 02, 2012, at 7:37 PM, dake105 wrote:

    Right Anand, free website, and pay news letters.

    Either way, the "modus operendi" is the same. Pique the readers' interest with a misleading headline and then rope them in for a pitch to sell an additional MF service.

    It seems that MF is working harder to sell their own stuff than to build a winning track record. It is the track record that would draw more customers through performance based results; not continual pitches for additional services.

    I know it has been a very tough market. But I would rather see a few green "+" signs next to MF stock recommendations I have purchased instead of wading through more MF offers.

  • Report this Comment On January 03, 2012, at 3:05 PM, Truth2Power wrote:

    I don't mind the style...I do mind the misleading headlines. If I received a present in the mail that was labeled, "One energy-saving battery" only to open it and find a dead battery with a note attached explaining that it saved all the energy LAST YEAR, and could now not be used, I'd be pretty annoyed.

    Anand, I understand the "market-thrashing prediction" was one you made last year, but that isn't what's implied by the article's title, and it isn't even what the thrust of the article is about. A more accurate headline would be, "One Grand Slam Stock and Four Strikeouts from 2011" or "Looks Can Be Deceiving" or "My Market-Thrashing Prediction: Oops!" or anything to indicate that this is not a market-thrashing prediction FOR THE FUTURE.

    People read this article hoping to get one stock recommendation (a "market-thrashing" one, no less), and they didn't. No wonder they're annoyed.

  • Report this Comment On January 06, 2012, at 3:29 PM, Jerry2014 wrote:

    Read Comments-stop

    Agree-Stop

    Won't Waste My Time with Comments-Stop

    At End of Paid Period-Terminate-Stop-Stop-Stop-Stop

  • Report this Comment On January 12, 2012, at 10:20 AM, BigBlackMamba wrote:

    Predicting over an arbitrary period such as 1 year is never an easy thing to do. The article itself is an interesting one as it gives an insight into a fellow investor's mind over the chosen period.

    I prefer to use a much shorter time period for my trades so I use the predictions made on

    www.shares-predict.com. This is a free site and is displaying an impressive level of accuracy.

  • Report this Comment On May 01, 2012, at 6:53 AM, jbpaul57 wrote:

    I have found these guys are just a late night infomercial.

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