Back at the beginning of 2012, I ran a stock picking contest. I also ran a stock market contest this year, and I’ll probably run one next year. (Aside, if you’re a blogger and you want in next year, let me know and I’ll invite you.) Anyway, at this point a full 92% of my content is just me updating people on stock picks by bloggers who think they know something about stocks.
I finished the year 9th out of 13 entries, even though my picks were up a combined 17.0891%. It was a good year for the stock market, and my competitors had some terrific choices. It’s just another reason why I am below average in most every way.
I said *most* ladies. Don’t despair.
Anyway, now we’re almost two years after I made those picks. If I held them for the full 21.5 months, how would my return look now?
1. Imation Corp.
- Purchase price: $5.72
- Current price: $4.24
- Return: -25.9%
The maker of portable storage devices has stunk up the joint, taking some huge write downs in the time since I recommended the stock. They’re also continuing to lose money, and are burning cash at an alarming rate. I wouldn’t recommend this now and it’s been a dog.
- Purchase price: $14.80
- Current price: $8.35
- Return: -43.6%
Ouch. I want to play the Blackberry merger arbitrage, but I’m too snake bitten by this company. I’ll leave it to others. Let’s quickly move on.
3. Bank of America
- Purchase price: $5.56
- Current price: $14.35
- Return: +153.2%
Finally, I don’t suck. Validation tingles, particularly in my extremities. I’m not sure I’d continue to buy Bank of America here, but I’d still be happy to hold if I was in a $5.56.
4. Diana Shipping
- Purchase price: $7.48
- Current price: $11.79
- Return: +57.6%
Diana was a play on an improving world economy and the world shipping market working through overcapacity issues. Things are looking better in the industry, although improvement is still needed. Diana had the best balance sheet in the industry, making it a logical bet to weather the storm and emerge stronger on the other side.
What’s the total return? Let me crack out my adding machine…
Hey, that ain’t bad.
There are two lessons here.
First, don’t underestimate the importance of big winners. One stock is essentially responsible for most of my performance, even overcoming two pretty poor choices on my part. Investing in stocks with potential for huge gains is an important part of every value investor’s game plan. Yes, I know saying “you should invest in stocks that go up a lot” seems like pretty obvious advice, but this is actually easier to do if you’re looking at beaten up stocks.
And secondly, if you do pick a beaten up stock that rises 50%, don’t automatically sell your winners. Set a target price before you start, and stick with it, providing nothing material changes about the company. Knowing when to sell is one of the hardest things to come up with as an investor, but don’t be scared to set aggressive target prices, especially when looking at stocks that are down 50-90% from recent highs.