Fortune published an article in August 2000 with a bold title : "10 Stocks To Last The Decade". The article made an assessment of major trends that'll shape the next ten years .. and how their pick of 10 stocks are at the cutting edge of this change. In other words, Fortune advised investors to really invest i.e. build a buy-and-forget portfolio. Unfortunately one of these ten companies did not survive even 4 years since the article was published.
These 10 blockbuster companies, handpicked for long term investment, listed in the article were :
Broadcom
Charles Schwab
Enron
Genentech
Morgan Stanley
Nokia
Nortel Networks
Oracle
Univision
Viacom
And here are the results from the stock market, 7+ years since that article was published (here):
As a portfolio, these 10 stocks have eroded shareholder's wealth by a whooping 53% in a period of 7 years. The valuations of most stocks were faulty and were picked during periods of extreme optimism in the stock exchanges. Trading in these stocks was heavy and the price-earning multiple of each of these stocks (barring 1) was over 50. Imagine taking these stocks to Benjamin Graham or Warren Buffett for an assessment ! (while the first would have been furious, the latter would have been puzzled at the business which he didnt quite understand)
2 comments:
his shankar,
ths is very interesting - didn't expect to see nokia, oracle and morgan in this list. i think you got the destroyed sharehlder wealth part incorrect. it is around 39% :-P
Hi Sachin
Thanks for correcting the number. Losing 39% over 7 years is crazy! Investors could have invested the same money in risk-free government bonds (@ 4% p.a.) and still made an absolute return of 33%.
A large part of this stock-picking debacle is attributed to the price-earning ratios - 9 out of 10 stocks listed here had a PE ratio of 50 and above. (it's very rare that you'll find a stock like Google which has a PE of 70 when listed but still has given an appreciation of 400% over the last 2 years).
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