By Andrew Nyquist
It was April 26, 2011 and the closing price on the S&P 500 that day was 1347.24, roughly 5.5% higher than yesterday’s closing price of 1277.06. In the spirit of the 2011 NFL draft, I had prepared a mock equity draft for the year ahead. I had 10 stock picks, and although I knew this would be a stiff challenge, especially due to the market’s 2-year bull run, I understood that it was well timed for readership and would be a lot of fun.
Within the article lead-up to the actual picks, I wrote a cautionary note that “the market could see an intermediate top in the coming weeks (May-June), followed by a sideways to lower move throughout the late summer months of July, August, and possibly into September.” This proved to be good vision, and I used this cautious approach to make many of my picks at the time, as well as manage my investments in real life.
Yet, even with this foresight, the collaboration of my 10 picks has been just above average (so far), highlighted by Colgate-Palmolive (CL) up 14%, Merck (MRK) up 12%, Intel (INTC) up 12%, Cisco Systems (CSCO) up 9%, Microsoft (MSFT) up 4.5%, and lowlighted by two smaller cap speculative names down between 25-50% in Chesapeake (CHK) and Arch Coal (ACI) – note as well that all percentages do not include dividends and use yesterday’s closing price compared to the stock price on the date of the picks.
And although most of the picks turned out to be okay (especially the large cap dividend picks), I’ll be the first to admit that this exercise was geared a bit too much toward entertaining readership. Will I do it again? Yes. Will I provide results at the next mock draft. Sure. So why do I sound somewhat negative about the process? Well, I want readers to be educated on what they are reading and understand that blindly buying any stocks for a specified duration can be wildly irresponsible. Furthermore, I want you to understand that active professional traders/investors are hands-on, and this means managing risk day in and day out. And I want my readers to be risk conscious first.
If you’ve been reading my stuff for a while, you understand that I’m much more of a risk manager and active investor than a long-term buy and hold stock picker. Now, don’t get me wrong, I can pick stocks longer term with the best of them (and enjoy doing so), but even long term picks need stops and identified price areas where you get out — I’m all about capital preservation and setting risk-managed stops to protect my investments. And with this in mind, I understand that I probably would have been stopped out of any number of these positions due to the volatility of the markets (and note that I was on ACI… a couple times). So, please take these fun, more frivolous pieces with a grain of salt. Create an investment plan and diary, and stay on top of your investments. For more on this, read the Anatomy of a Trader series.
And yes, there will be another Equity Mock draft in 2012. It will contain good companies and stocks that I consider to be good investments for the year ahead. Just be sure to do your research and take it with grain of salt.
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No positions in any of the securities mentioned at time of publication.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of his employer or any other person or entity.
