Is your portfolio hurting? Join the club. As one of the analysts for the Motley Fool Rule Breakers newsletter service, it was chest-thumping time two months ago. Our average pick was fetching 28% more than the market average. Our scorecard was as green as a miniature golf course.
Then the market bogeyed into the rough. Badly. Darn windmill! We tumbled along with it.
If you want to kick us while we're down, now's a great time to take your best shot. As of last night, our average pick is up a mere 3.24%. The market's average return in that time has clocked in at 0.86%. It's so tempting to sugarcoat this. Our picks have nearly quadrupled the market's return! David Gardner trounces the market, again! A new batch of Mallomars is now just months away!
I won't, though. Our performance has been pitiful since the growth stock market peaked two months ago. The numbers aren't a relative victory, especially since so many of our newsletter subscribers trusted us to provide superior stock ideas. We've taken on a whole lot of risk for results that are somewhat competitive with practically risk-free money market returns.
So, what are you waiting for? Kick away.
Lessons from the fall
The funny thing about means and averages is that they underestimate the disparity. A number like 3.24% seems tame, but in reality our scorecard is all over the map. It's scattered with green and red like a holiday bag of M&M candies, and how sweet it is depends on what you're chewing on.
Four of last year's picks have more than doubled. That naturally means that there's a fair share of badness to weigh down the stocks that have held their own despite the downturn. True enough, five of the selections have shed at least half of their value.
That's why 3.24% -- or 3.2% -- or, heck, 3% even, masks the performance of a growing collection of equities that have unique stories to tell. Whether you're looking for recent market winners or prefer to find quality growth stocks at a discount, keep sifting through the ruins and I'm sure you'll find something.
My own personal portfolio reflects that kind of disparity. I bought preferred shares of Marchex (NASDAQ:MCHX) a few months ago, figuring I had an income-producing angle into a dynamic baron of online real estate and have seen my shares shed over a quarter of their value in that time.
A few months earlier, I had bought into Baidu.com (NASDAQ:BIDU), China's leading search engine. Even though many Internet companies have been slammed hard, I'm sitting on a 20% gain in that investment. Both Marchex and Baidu are relying on a healthy online advertising market to keep growing, so why am I doing well with one and not the other?
Timing may be part of the reason. I bought into Baidu after its IPO frenzy died down last year. My entry into Marchex came as the shares were peaking with strong momentum earlier this year. That's why I don't mind the meager 3% pockmark on the scorecard. Sure, many of the banged-up picks may continue to head lower, but at least your timing could have been worse.
Buy low, buy lower
It's not the perfect mantra. It's not as catchy as "buy low, sell high." The problem is that buying low and selling higher is a game scored after the fact. Nobody has ever bought a stock expecting it to go lower. That's what shorting stocks is for. In my mind, when I enter into a long position in any public company, I'm doing so because I think I'm getting in before the masses.
It's a strategy that served me well when I bought into Netflix (NASDAQ:NFLX) in 2002 after the shares had been cut in half following its IPO five months earlier. But the strategy also backfired on me when I thought I was getting a bargain on shares of Krispy Kreme (NYSE:KKD) after it started slipping into the single digits on its glazed downward spiral.
We all think we're buying low. The real question is whether you have the mettle to buy lower. Are you willing to add to your position on a dip? Are you the type of investor who appreciates buying into companies you found attractive earlier at prices that were 10%, 20%, or more than 30% lower?
Nodding along -- picking strawberries, cranberries, or any red fruit you like -- may be the best way to approach the downturn in the Rule Breakers newsletter. I liked iRobot (NASDAQ:IRBT) when I recommended it six months ago at $31.41 a share. How do you think I feel now that the company has landed even more military contracts, posted a strong March quarter, and just happens to be trading 25% lower?
You know exactly how I feel. It wouldn't be an active pick if I felt any different. If the fundamentals change, we'd recommend a sale, as we have on four of our past selections.
My worst-performing selection has been XM Satellite Radio (NASDAQ:XMSR). The shares are down 56% since I singled out the satellite radio market share leader in the fall. Growth has slowed, and rival Sirius (NASDAQ:SIRI) has been gaining on it, but you know that I think XM is a bargain at half the price I was willing to pay back in October.
So, welcome to the joys of putt-putt golfing on a red felt carpet. The carnage is as real as the potential opportunities that lie on the other side of the spinning windmill.
Swing away, Fool.
XM and iRobot are active Motley Fool Rule Breakers newsletter picks. You're welcome to check out all of the winners and losers with a free trial subscription that includes an all-access pass for the next 30 days to check out all of the past and current buy reports.
Netflix is an active Stock Advisor selection.
Longtime Fool contributor Rick Munarriz has been writing the "Early Adopter Roundup" column since the newsletter's inception in the fall of 2004. He own shares in Baidu, Marchex, and Netflix. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
