How'd we do last year? It's a reasonable question. Those of you trying to decide whether to buy Stocks 2003 -- our annual compendium of stock ideas -- want to know how our 2002 choices performed.

The answer, of course, is, "Good, so far."

Of the 18 companies profiled in 2002, 10 surpassed the S&P 500's performance. Our top-performing company, the Washington Post Company(NYSE: WPO), generated a one-year return in excess of 38%. Add in dividends, and your returns approach 40%.

The "so far" part is one of the main reasons we changed from the Industry Focus format to the Stocks 2003 one. Companies are constantly being pressed hither and yon by forces outside their control. These forces rarely conform to the tyranny of a 365-day cycle, and as such, it's often distasteful for us to look back after a year and either declare success or resign in defeat.

Last year, we had a three-stock feature on biotechnology investing. This past year was absolutely horrid for the entire biotech industry. What does that mean for the companies we chose last year? It means that their stocks were going to get pummeled no matter what -- and they did.

We're not big fans of analysts' dependence upon one-year "targets" for stock price. We dislike it because, even if we have good insights into the business, the short-term stock price points are essentially unknowable. They're derivatives on too many things to be able to look out, short term, and make a determination with any accuracy.

Think about it -- it can take years for a company's decisions to make a difference in its operating results. A bank, for example, could triple its loan revenues tomorrow by dropping its standards entirely. Is this a smart decision? On a short-term basis, it would look great -- long term, it would most likely destroy the company. And, yes, a year is decidedly short term. Just the same, spending millions of dollars on an advertising and branding campaign will have an immediate, negative impact on company profitability, but it should be a net positive down the road. No, a year is just an arbitrary point in time, as far as commerce goes.

And think about this: To take one company on the list, American Express(NYSE: AXP), one of the largest companies in our profiles last year (and a great performer, as it turns out) saw its stock waver between $26 and $44 a stub in the course of 2002 -- a difference of nearly 70%. Since the stock currently trades at $36, the person who bought at the high and the one who bought at the low have completely different perspectives. Never mind that they may have bought mere weeks apart from one another.

So while we're plenty pleased with our market-beating returns for Industry Focus 2002, we thought this year, we'd do something, well, more Foolish in our approach. Rather than putting out what we felt were good stock ideas, and then just hoping they'd hit a high around November 2003, we're adding a component that will make this a more usable product. 

Each company's profile has a section entitled "Timeframe," spelling out the length of time each analyst thinks it would take for his investment thesis to come to pass. For one big video game company, it could be coincidental with a big software release this coming spring. For the advertising agency mired in a multi-year hangover, it could be significantly longer. But we feel each has its own compelling investment quality, and this could be manifested quickly, slowly, or, as it turns out, not at all.

At any rate, when the question, "How'd ya do last year?" comes up next year, we'll be able to point to the context we described in advance in Stocks 2003.

So, yes, for the one-year period, Industry Focus 2002 beat the market by about 5%. We're, of course, happy about that, but not satisfied. For this year's batch, we'll tell you the whens and whys so you're not left wondering in April, when a stock's up big, whether you'd be selling too early.

Foolish best!

Bill Mann,
Stocks 2003