What were the 10 best stocks of the past 10 years, and what could we learn from them? Those were the questions we asked a few months back, and we discovered that the 10 best stocks of the past 10 years were:
- Obscure
- Ignored
- Small
That's all well and good, but then we got to thinking: What were the 10 worst stocks, and what could we learn from them?
Without further ado, here are the 10 worst performers.
| Company | 1996 Market Cap (mm) | Return, Oct. 1996 to Oct. 2006 |
|---|---|---|
|
Intrusion |
$270 |
(99.5%) |
|
Atari |
$1,522 |
(99.5%) |
|
MDI (NASDAQ:MDII) |
$287 |
(98.1%) |
|
Web.com** |
$1,893 |
(98.0%) |
|
Harken Energy |
$236 |
(97.8%) |
|
Technology Solutions |
$527 |
(97.2%) |
|
PLC Systems |
$430 |
(96.6%) |
|
Revlon |
$1,598 |
(96.4%) |
|
Cytogen |
$282 |
(96.1%) |
|
Foster Wheeler |
$1,767 |
(95.5%) |
Danger! Danger!
There are a few caveats. First, these companies are all still in business and trading on major U.S. exchanges. Many publicly traded companies went bankrupt over the past decade, leaving shareholders with nothing. We also excluded companies that did not have a market cap of more than $200 million 10 years ago, to keep penny stocks out of our results.
Those qualifications aside, here's what we can conclude: The 10 worst stocks of the past 10 years were also small. And if you keep looking down the list, that's a trait that keeps showing up. Orthologic (NASDAQ:OLGC), Indus International (NASDAQ:IINT), Sitel (NYSE:SWW), Analysts International (NASDAQ:ANLY), and DynexCapital (NYSE:DX) are all among the top 50 losers of the last 10 years, and all were capitalized at less than $2 billion back then. In fact, there were only two large caps among the top 50 losers: 3Com (NASDAQ:COMS) and Tenneco.
But this also makes sense: Small companies offer the greatest risk and greatest reward in the market.
Be boring, be rational
But none of these stocks could be called obscure or ignored. While the 10 best did boring things like make soda (Hansen Natural) and manufacture pool chemicals (Pool Corp.), a number of the 10 worst did exciting things in pursuit of the next great technological or pharmaceutical breakthrough.
Many investors believe that buying into these breakthroughs is the key to thumping the market. Consequently, they value them above and beyond justification. Yet that's just not the case. As Paul Elliott noted, the risk with small caps may not be with the companies, but with us as investors! That's because too many of us go chasing after the next big thing, rather than systematically searching out and finding legitimate small businesses with strong fundamentals trading at reasonable prices.
Foolish conclusion
The 10 best and 10 worst stocks of the past decade were small caps. But they were very different kinds of small caps.
In our Motley Fool Hidden Gems service, we heed the lessons of the best and worst performers in our quest to find the very best small-cap businesses. While a Hidden Gems pick like Drew Industries does the drab duty of manufacturing RV parts, we think that's exactly the point. Click here to see our more than 60 favorite small companies with a free 30-day trial.
This article was originally published on June 5, 2006. It has been updated.
Neither Tim Hanson nor Brian Richards owns shares of any company mentioned in this article. No Fool is too cool for disclosure.
