Aunt Jill on The 404: Apple, Facebook, Green Day
When Facebook announced its IPO, I appeared on CNET's 404 with Jeff and Justin and advised that everyone should steer clear of the stock. I didn't have inside information, nor did I know that the stock would drop like a stone. I just believed that most people should buy individual stocks, especially at an IPO.
Today, it was my great fortune to be scheduled to appear on the 404 the day after Facebook fell to an all-time low of $18.75 and at the very same time, Apple became the largest US company ever, as measured by stock market value, but not adjusted for inflation. Check out the episode, where we talk Facebook, Apple and I try to break up a fight about Green Day!
I know that there are fabulous stories about people who plowed into Apple and are now millionaires, but odds are that's not going to happen to you. The reason is simple: data show that even professional stock pickers have a hard time compiling a winning record, when compared to their relevant indexes.
According to research, over the 23 years ending in 2009, actively managed funds trailed their benchmarks by an average of one percentage point a year AND another report from S&P found that most actively managed funds waged a losing battle over the five years through Dec. 31, 2010. If actively managed mutual funds, which are filled with lots of well-paid analysts, can't beat the indexes, why should we expect that mere mortals like us could?
So if you want to try to play with Facebook or Apple or any other stock, do so only with the amount of money that you are willing to lose. Otherwise, stick to a well-diversified portfolio of no-load index funds, where wimps and successful investors find calm amid the raging market storms.
404 fans can e-mail financial questions to: askjill@moneywatch.com.
