I run into a bunch of data as I'm reading about investments. For instance, the newest issue of one financial magazine I read regularly arrived the other day. Each issue features a page of usually interesting statistics near the end of the magazine. These include:
- The most widely held stocks -- such as ExxonMobil, General Electric, and AT&T (NYSE:T).
- Recent and long-term returns for various indexes, such as the S&P 500, the Russell 2000 (which focuses on the small-cap universe), and the Morgan Stanley EAFE (which reflects markets in Europe, Australasia, and the Far East).
- The highest-yielding Dow stocks, which included Bank of America (NYSE:BAC), Pfizer (NYSE:PFE), and DuPont (NYSE:DD).
As I read through the statistics, though, I worried that some people might think that the highest-yielding Dow stocks are all good investments -- because they're Dow stocks and sport high yields. They might not realize that Dow companies can run into trouble and be replaced. Eastman Kodak, AIG, and Goodyear Tire (NYSE:GT), for example, were once Dow stocks, while Kraft (NYSE:KFT) didn't become one until last year.
Also, steep dividend yields are often a byproduct of stock prices that have imploded for good reason. Bank of America, for example, faces considerable uncertainty as a major financial services enterprise in today's economic environment. Many of its peers have reduced or eliminated their dividends.
A top stock?
Here's another worry -- the page lists 10 "top-performing stocks," with returns for the last month and the last year. Yikes! Even a one-year performance offers little to draw any conclusions from. Lots of below-average stocks have good years, and lots of great stocks have so-so or crummy years. And why anyone would bother to list top performers over a one-month period is beyond me.
I hope no one thinks the list features rockets that will keep on rewarding investors. One company on it, RadioShack (NYSE:RSH), illustrates my point. As much fondness as I have for the company, remembering shopping there in my childhood, and as much as I may want it to succeed, the truth is that it's struggling. Sure, it's up 50% from its November lows, but the stock has dropped 20% over the past year. Even worse, it has lost an average of nearly 6% annually over the past decade. A visit to its page at our free CAPS stock-rating service shows that most investors are bearish on the company, though it does have its supporters. Still, I think there are lots of more promising investments.
So as you face financial fare, be a critical reader -- and look beyond the first statistics an article gives you.
