Q: What's the most I could have lost in stocks the past three years?
A: Investors like to think they can't do all that much damage. Many investors are blinded by the fact that the market tends to rise. So even if they choose poorly, how bad can the losses really be?
But that's not really the case.
Investors who don't do their research, pick stocks about to crash or are just plain unlucky can cause tremendous damage to their portfolios. Bad stock picking doesn't just hurt your returns, but has the potential of destroying your portfolio. Investors who picked the worst stock in the current Standard & Poor's 500 in 2011, 2012 and 2013 would have suffered a 93% loss over the three years. That means an initial investment of $10,000 in 2011 would be worth a mere $651 at the end of three years. That's a loss few investors can ever recover from.
It's not as hard as it seems. Investors chasing alternative energy and solar during the craze of 2011 might have jumped into First Solar. Those shares, though, fell 74.1% in 2011. Hoping to score from the mobile gadget craze, these investors might have seen Best Buy as a winner. But shares of the retailer fell 49.3% in 2012. And then investors hoping for a commodity bounce, who jumped into Newmont Mining, lost 50.4%.
These numbers are a big reminder to investors that trying to pick individual stocks is risky and the losses can be enormous when you're wrong. Don't think the market's general upward trend will bail you out.
TRACK YOUR STOCKS: Get real-time quotes with our free Portfolio Tracker
Follow Matt Krantz on Twitter: @mattkrantz.
No comments:
Post a Comment