Picking Winners and Losers

By Dr. J. David Ashby, CPA, CFP® professional

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The year 2024 was a good year for stock markets, especially for the U.S market. The three major indicators for the U.S. market (Dow, S&P 500, and NASDAQ) all registered healthy returns. You might think it was virtually impossible to lose money in stocks. But let’s take a closer look at last year, using the S&P 500 as an example.

The S&P 500 is an index of 500 of the largest companies listed on U.S. exchanges. Most stocks in the index had positive returns for the year. Yet almost a third of them, 31 percent, had negative returns for the year! If you held the overall index of 500 stocks, you were well rewarded. But if you held a portfolio of individual stocks with concentrations in some of those 150 plus companies, your portfolio likely suffered. Keep in mind only large, well-known companies are included in the mix. These aren’t fly by-night start-ups.

The 31 percent of losers last year may be surprising but actually not out of the norm. Barrons recently reported the results of a study by an Arizona State finance professor. Hendrik Bessembinder looked at 29,000 stocks over a century of returns. Roughly 52 percent of them lost money for investors. But the positive returns of the winners far outweighed the negative returns of the losers.

Of course, the smart thing to do is to simply stay away from the losers, right? Makes sense, but easier said than done. I’ll give you a few examples.

Two companies in the S&P 500 are FedEx and UPS. Most of us are probably indifferent between the two as long as we get our packages on time and intact. The two companies dominate package delivery in the U.S. In 2024, FedEx stock gained 13 percent while UPS lost 16 percent! The difference in those returns is surprising after the fact, much less predictable in advance.

Now consider two similar companies where we consumers are not indifferent: Coke and Pepsi. You no doubt have strong opinions about your favorite soda. But it might surprise you that Coke was up nine percent last year while Pepsi lost eight percent. (Maybe no surprise if you’re a devout Coke fan!) A similar situation occurred between two U.S. auto manufacturers. GM was up for the year while Ford was negative.

I don’t follow any of these companies closely. But as an outside observer, I’d characterize each as a well-known household name. On the surface, you’d expect similar returns from the pairs. But that’s not the case at all. Picking winners isn’t easy.

Instead of picking winning stocks, how about picking winning countries? Countries where the stock market is poised to do exceptionally well. I divide foreign markets into two groups: developed markets (e.g., Europe, Canada, Japan) and emerging markets (e.g., China, India, Mexico). Any guess on the top performing foreign developed country last year? Israel. That’s right.
Israel’s stock exchange gained 34 percent last year. I certainly didn’t see that coming, given the daily headline news on Israel.

What about the top country in the emerging markets world? It was Taiwan, at 28 percent. Isn’t that the island country China has its eye on? John Templeton, founder of the Templeton family of mutual funds (now Franklin Templeton), used to say the time to buy stocks is at the point of maximum pessimism. That phrase might apply to either of those countries.

So, what does 2025 hold for investors? I certainly have no predictions given the preceding discussion. But it’s safe to say picking stocks or even countries is a tricky task. Better to be diversified across many companies, many industries and even many countries. As John Bogle, founder of Vanguard, puts it: “Forget the needle, buy the haystack!”

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