Investing: 2019 Stock Picks in Review

2020 was such a strange year, and the stock market certainly lived up to the same strange behavior.  Not only did the market have a huge drop, it also had a huge rally.  I have some real concerns that the stock rally reflects a stock bubble. However, it could also reflect money manager’s concerns about inflation stemming from the US printing money to escape the Covid-induced economic depression – and thus putting their money into the stock market as a hedge against inflation… Who knows. For now, let’s take the stock prices at face value.

In 2019, I put out three blogs about stock picking and then failed to follow up on their status in 2020.  Let’s correct that in 2021.

At the end of May, 2019, I was examining four stocks:

Stitch Fix, SFIX, ~$24
Activision, ATVI, ~$44
NVIDIA, NVDA, ~$140
Intuit, INTU ~$249

Ultimately, I decided upon Nvidia over the other four.  How did that decision pan out?  On January 12, 2021, the prices are around:

Stitch Fix, SFIX, ~$67 => Up 179%
Activision, ATVI, ~$44 => Up 102%
NVIDIA, NVDA, ~$140 => Up 285%
Intuit, INTU ~$249 => Up 46%

Bull markets make most stocks look good, and any one of these four stocks would have been a great bet.  Fortunately, I bet on the best of the bunch!

However, before I break my arm patting myself on the back, we do have the other stocks from the other columns…  In August, I wrote two different columns looking at:

Enbridge, ENB, ~$33.00
Tile Shop Holdings, TTS, ~$2.60
General Electric, GE, ~$8.60

Now in all fairness, I was deciding whether or not to dump TTS and GE and I held onto both of them as they dropped quite a bit!  However, with the market rally in the 2^nd half of the year, they all went up so the financial decision isn’t too horrifying:

Enbridge, ENB, ~$34 => Up 3%
Tile Shop Holdings, TTS, ~$4.30 => Up 65%
General Electric, GE, ~$11.80 => Up 37%

However, these results are also a little misleading.  Enbridge continues to pay a dividend of $2.61 / share per year which is over a 7% return at the current price.  Factoring in 1.5 years of dividends into the price would show a 15% return on the price in August.  Much better than 3%! 

If you look for TTS, it no longer exists.  It is now under the symbol TTSH because it was de-listed from the New York Stock Exchange.  While the stock has clawed its way back, this stock dropped to $0.46 a share in March, 2020 and no longer met the criteria to be listed.  It is now an “Over The Counter” or OTC stock with much more restrictions for trading.  It is much harder to buy and sell and volumes are so low that a few buyers or seller can really make the price swing.  It is unstable.  Yet also up 65%!  Bizarre.

GE also shows signs of recovery, but if you look at the last year, the chart is a ‘U.’  It dropped below $6 on the way back to north of $10.  Yet a 37% return isn’t too shabby!  It still has the $0.04 per share dividend, but this does not move change the annual return of the stock.

The benchmark for stock performance is the S&P 500.  This collection of stocks is changed from year to year but tries to represent the overall market.  For example, this year, the S&P 500 dropped GE and added Tesla.  The S&P historically averages a 10% return, but in 2020 returned 15.76% for a two-year return of nearly 50%.

This means that of the seven stocks I considered, all of them beat the S&P 500’s average return when you consider dividends!  Compared against the 2020 return, 6/7 beat the market and over the last two years, 4/7 beat the market. 

If we knew in advance which stock would be the best, I could have retired this year.  However, I don’t know for sure, so I diversify.  I also am not good at getting rid of my loser stocks.  With 20+ years of investing experience, I thought about selling GE and TTS (now TTSH), but I did not.   I was afraid of missing out on their recovery. 

I was right about their recovery, but they still haven’t come back to where I bought them.  If, instead, I had sold those stocks and simply bought Nvidia or a similarly performing stock, I could have recovered my initial funds and made a nice profit.

There are three lessons to be learned.  First, since we don’t know which will win, study hard and try to pick the best options.  While we might not pick the best stocks, we can do pretty good.

Second, since we still don’t know if we will be right, diversify.  I had winners and losers, but overall, I did fairly well investing over the last couple of years.

Third, as Chris from Investing From The Beach (not a sponsor, I’m just a fan) would say, “fire the employees that steal from you.”  When GE and TTS/TTSH were starting to drop, I should have reacted faster and sold them when I recognized that the reason why I bought them (dividends and the stock would go up) no longer applied to the stock.  I can always buy back in if I change my mind!  Dumping loser stocks lets us put our money into better performing stocks.

As a bonus lesson, if we believe in the stock, don’t sell it.  You could tell by reading my blog, I was not sold on GE or TTS/TTSH.  I should have sold.  But I love the Realty Income Company (stock symbol O).  Even though that stock has dropped, I am not selling.  It has a great dividend and I think it will ultimately provide me with market beating returns with more security than the S&P 500 because it is a real-estate backed security (AKA: REIT = Real Estate Investment Trust).  Perhaps I’ll go more into detail on that stock in the future.  Until then, enjoy the ride of the market and avoid the plague!