Editor’s note: This article was first published in February 2011. The 2,500 daily Google searches in Spain, the “stable and high” Spanish market, the fear of a Portuguese bailout (which came in May 2011) and the outlook for “this 2011” reflect that time.
Every day, Google receives roughly 2,500 searches from Spain for “most profitable stocks to invest in 2011“, and I decided to write this article in the hope that those people would read it before one written by a stock market analyst. We’ll see why in a moment.
First of all, bear in mind that if someone recommends specific shares, depending on when you read the article, the advice may or may not still be useful, since the market can change in days, hours or minutes.
I imagine the people making that search are hoping for tips from fortune-telling gurus who can predict market movements, and no such thing exists.
I’ve often been accused of having “little respect” for stock analysts. Honestly, I respect everyone, and I value analysts’ work as long as they admit that they’re wrong 70% of the time, which means you’d do better tossing a coin (a 50% chance).
If you look around the blogosphere right now, you’ll find more variety of opinion on the most profitable stocks than fruit in a market. And it just so happens that the very stocks everyone agrees you should avoid are the ones that end up being the most profitable in the long run. Here’s a very practical example.
2007. Investment advice:
Banco Santander: The favourite and the stock most recommended by analysts. In fact, it really has been the bank with the biggest growth in market capitalisation since 1990, but look at how its share price actually performed.
If I’d followed the analysts’ advice in 2007, I wouldn’t have made any money in 2008, and today I’d be holding a losing position.
Gamesa: The one analysts ruled out. I remember them saying something like: “It’s a company that lives off subsidies, so it isn’t advisable to invest in it in the short term, although it could be very profitable for a patient long-term investor.” Now look at what its share price did.
They hit the nail on the head, only the other way round. Gamesa was one of the most profitable stocks over 12 months in 2007, while in the long run, as of today, we’d be sitting on losses, so the investment was exactly the opposite of what they said. It was a very good short-term investment.
Still looking for investment tips?
On top of that, there’s the difficulty the Spanish stock market faces right now: inexplicably, share prices are far too stable given the current situation (stable and high). So rather than looking for the most profitable stock, we should be looking for the “most profitable moment” to buy in.
People often say that in stock market investing you need to know when to get out, but I’d say the moment you buy into a stock deserves even more attention.
With a lingering fear about Portugal’s situation and a possible bailout, 2011 could be full of surprises on the stock market, because those fears end up hurting the market. So I’ll say it again: this year, the best investment may be patience, waiting for a particular stock or the whole IBEX to drop so we can buy in at low tide and then ride the crest of the waves afterwards.
See also: Seth Klarman’s advice for investors in today’s market is worth taking seriously
As Warren Buffett put it, you should wait for a stock to fall ill and invest in it so you can stay by its side during its recovery and healing. Of course, you also need to work out whether the illness is temporary or terminal.
Note: I understand that some people may feel hurt or see themselves in this, but this criticism of stock analysts (entirely constructive) isn’t aimed at any particular person or website.
Further reading
- The most profitable investments for 2011
- Why investing in the stock market is the most profitable investment
Featured image: germanborrillo, CC BY-SA 2.0, via Flickr.
