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A 2004 Report Card

Whitney Tilson
January 14, 2005

One of the reasons I like writing on the Web is that, while it sometimes comes back to embarrass me, there's a high level of accountability: Every column I've ever written is still posted online. In that spirit, at the beginning of each year I like to review the stocks I discussed in my columns during the previous year.

While I will review my stock picks and pans, keep in mind that I strongly discourage anyone from buying or selling based on what I -- or anyone else -- recommends. My goal is to help my readers think sensibly about investing and develop the tools to make good decisions on their own (keeping in mind that the best decision for many people is to avoid picking individual stocks altogether; there's no shame in mutual funds -- or better yet, given the many scandals in the mutual fund industry, index funds).

In my experience, last year was the toughest year ever to find bargain stocks, so I only recommended three stocks in all of my columns during the year. Not surprisingly, I found it far easier to find stocks to pan, which I did on 18 occasions (in a few cases, I panned the same stock at two different times during the year). On average, my picks were up 32%, and my pans rose 11% -- a good performance, given that I was quite bearish in a year in which all of the major indices rose. I've posted the entire list, with performance information, on the Fool News and Commentary discussion board.

Comments on picks
In January, I wrote that I owned and still liked McDonald's (NYSE: MCD  ) and Yum! Brands (NYSE: YUM  ) , which have risen 21% and 31%, respectively, since then (in fact, McDonald's was the best performing stock in the Dow in 2004). I haven't sold a single share of either stock, as I believe both are roughly 80-cent dollars. Two months later, in a column on Bullish Options Strategies, I highlighted a pick from one of my Superinvestor friends, January 2006 $30 LEAP calls on Laboratory Corp of America (NYSE: LH  ) , which is up 44% (he still owns and recommends the position).

Superinvestors' picks
In addition to my own stock picks, in Top Picks from Money Managers I wrote about six stocks recommended by some of the Buffettesque Superinvestors I'd profiled in my previous column. Led by Doral (NYSE: DRL  ) , which has risen 48%, those stocks are up an average of 9% vs. 4% for the S&P 500 over the same period.

Blue-Chip Bargains?
In my October column, Blue Chip Bargains?, I profiled the 10 largest market cap U.S.-based companies whose stocks were within 5% of their 52-week lows. While I didn't recommend any of them, I concluded that "I believe it's highly likely that these 10 companies, as a group, will substantially outperform the S&P 500 over any period longer than a year." Three months later, they are up 3%, nearly keeping pace with the S&P's 4% rise over the same period (given their above-average dividend yield, however, I'll call it a dead heat). The best performer has been Sysco (NYSE: SYY  ) , up 26%, while Pfizer (NYSE: PFE  ) has lagged, falling 16%. I haven't changed my opinion that these 10 companies will beat the market.

Comments on pans
I started the year by reiterating my bearishness on Farmer Mac (NYSE: AGM  ) , which has fallen 28% since then, and warning investors about overvalued tech stocks, specifically disclosing that I had made bearish bets on the Nasdaq 100 tracking stock (Nasdaq: QQQQ  ) and the Semiconductor Holders Trust (AMEX: SMH  ) , which are flat and down 31% since then, respectively.

In February, I wrote negatively about Juniper Networks (Nasdaq: JNPR  ) , Research in Motion (Nasdaq: RIMM  ) , and Sirius Satellite Radio (Nasdaq: SIRI  ) -- my worst calls of the year, as they are up 1%, 64%, and 123% since then. So am I ready to admit I'm wrong on these stocks? Heck no! Just give them a little more time. I looked pretty dumb for quite a while on Krispy Kreme (NYSE: KKD  ) , which I warned investors about shortly after its IPO, before being vindicated...

Late in the year, I bashed another group of overvalued stocks, writing:

"...there are plenty of pockets of absurdity. I recently looked at a list of the most heavily traded stocks, and all sorts of nonsense jumped out at me: Travelzoo (Nasdaq: TZOO  ) , having risen in the past year from $5 to above $90 and valued at 344 times trailing earnings, is the most extreme example, but let's not forget the Travelzoo of six months ago, Taser (Nasdaq: TASR  ) (which has fallen only 27% from its all-time high -- there's a lot more to go), and some fine, yet highly overvalued companies such as Yahoo! (Nasdaq: YHOO  ) , Research in Motion (Nasdaq: RIMM  ) , Broadcom (Nasdaq: BRCM  ) , and eBay (Nasdaq: eBay  ) . The company with the lowest trailing P/E among these six stocks is Broadcom, at 60. (And I'm not even considering the impact that expensing options will have.) As a group, these stocks are sure to significantly underperform."

Since then, these stocks are down by an average of 5%, while the Nasdaq has risen 2%.

Advice going forward
After 175 columns for The Motley Fool over more than five years, I can't think of any new advice, so allow me to summarize the timeless, basic principles of sound investing (with links to my columns on each of these topics):

  • Never pay up for a stock, no matter how much you like the company. Only buy when you're Trembling With Greed. If you can't find something smart to do, don't do anything! There's a certain Joy of Cash.
  • Try to invest in high-quality businesses. Can you recognize The Perfect Business?
  • Finally, don't get too caught up with investing. Be sure to have A Little Perspective and count your blessings. We all have much to be thankful for (see below).

An update and appeal

My family and I just got back from a wonderful two-week trip to Ethiopia and Kenya, visiting my parents and sister, who live in Nairobi and do development work in education and public health. I wrote about my last visit to Africa nearly four years ago in one of my all-time favorite columns, A Little Perspective, in which I profiled two wonderful Ethiopian charities, the Cheshire Home and the Addis Ababa Fistula Hospital. Many readers were inspired by these two organizations and made contributions, so many years later, I'm back with an update, photos, and stories from two additional worthy charities, an