Want to Give Up on Picking Stocks and Just Play the Market? Here's How

By Moe Zulfiqar

The year 2013 was a stellar year for stocks. The key stock indices have seen record increases: the S&P 500, which showed its best performance since 1997, increased by almost 30%; the Dow Jones Industrial Average saw a similar increase; and the NASDAQ Composite Index performed even better, ending the year with a return of more than 35%.

Looking at these numbers, one must really ask how their portfolio has done. If your portfolio had similar returns—well done! If it lagged, here’s something to note: hedge funds returned only 7.4% for the year. They lagged by almost 23% compared to the broader market return—the most since 2005. (Source: Bit, K., “Hedge Funds Trail Stocks for Fifth Year With 7.4% Return,” Bloomberg, January 8, 2014.)

Two key stocks that beat the returns of key stock indices and the returns given by the hedge funds many times over this past year were Gray Television, Inc. GTN and Tesla Motors, Inc. TSLA.

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Gray Television, Inc.

In 2013, this stock opened at $2.28. On the last trading day of the year, it closed at $14.88. If you held Gray Television stock in your portfolio for the entire year, your profits per share would have been $12.60, or just over 552%. (Source: StockCharts.com, last accessed January 9, 2014.) This return is similar to beating the hedge funds return by almost 75 times and beating the returns posted by the S&P 500 by 18 times. Below is the chart that shows this stock’s precise move.

Chart courtesy of www.StockCharts.com

Tesla Motors, Inc.

Tesla Motors opened at $35.00 in 2013. On the last trading day of the year (December 31, 2013), the stock closed at a share price of $150.43. It went as high as $194.00 at one point during the year. If an investor held the stock in their portfolio for the entire year, they would have gained $115.43 per share, or almost 330%. (Source: StockCharts.com, last accessed January 9, 2014.) Investors would have beaten the hedge funds return by almost 45 times and the S&P 500 returns by 11 times. The company’s stock chart below shows its precise move.

Chart courtesy of www.StockCharts.com

But these were returns for 2013, which is now long gone; so what does it all mean for investors in 2014? What can investors learn from 2013’s top returns?

When it comes to portfolio management, investors have to keep their long-term plans in mind. If they are building a portfolio for their retirement, or anything else for that matter, they have to consider their risks and understand what kind of investments they are buying into. A well-diversified portfolio can help them reach their long-term goals, while reducing the risk of major draw-downs. Investors should avoid speculation, because it can have a major impact on their portfolio if the trade doesn’t work in their favor.

Plus, thanks to financial innovation, an investor’s portfolio can perform similar to the markets by adding an exchange-traded fund (ETF) like SPDR S&P 500 SPY, which tracks the performance of the S&P 500.

This article Want to Give Up on Picking Stocks and Just Play the Market? Here’s How was originally published at Daily Gains Letter