Can you pick stocks?

Bill Parrott |

By now you probably have heard of the FANG stocks.   The FANG consisted of Facebook, Amazon, Netflix and Google.   These four stocks had a great run in 2015 returning 82.72% to those who were fortunate enough to buy them on January 1st of 2015 and sell them on December 31 of 2015.    Were you part of this elite crowd?

How about a pinch of SALT?   The SALT group was, Autobytel, Loton Corp. and Tri-State 1st Banc.   SALT returned 83.01% for calendar year 2015.   If you had owned some SALT, you would have outperformed the FANG by a pinch.

Say WHAT?  What if you purchased WHAT?  This cohort returned 160.07% in 2015.   The WHAT group consisted of Wayfair Inc., Heron Therapeutics, Anacor Pharmaceuticals and Tile Shop Holdings.   Did you own some WHAT?

How about DOME?   The Domers blew the roof off the FANG’s.    DOME returned 199.57% last year.  The DOME lineup included Dycom Industries, Omega Protein Corporation, Meritage Hospitality Group and Eagle Pharmaceuticals. 

What if you bought the wrong FANG?  If you bought Fresh Market, Anadarko Petroleum, NuStar GP Holdings and Geospace Technology you would have lost 40.96%.  This FANG would have taken a big bite out of your financial assets.

It’s unlikely that you owned any or all of these combinations last year.   Does this make you a great stock picker or a bad stock picker?  I would say neither.  Is there a better way to capture great returns?

I would suggest that most investors spend their free time establishing a solid financial plan.  Your financial plan will help determine your asset allocation which in turn will drive your investment selection.   Once your financial plan is completed, I would then recommend a basket of low cost index funds that are diversified around the globe.   Your new investment holdings should match your hopes, dreams and fears that were generated through your financial plan.   This program is less stressful than trying to find the next FANG!

It takes as much energy to hope as it does to plan.  Eleanor Roosevelt.

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.

Source:  Morningstar Hypothetical.