Business & Real Estate

Nest Egg Briefs: The problem with hindsight

Do you wish you had invested in Zoom when it went public last year? Or Cisco in 1990? What about Qualcomm, which is up nearly 10,000% since its inception in 1991? I can’t begin to tell you how many times I hear that regretful refrain from investors, particularly when it comes to tech stocks. Yet nobody talks about the failures. That’s probably because they’re no longer around. Lest you think that you can’t go wrong purchasing new tech stocks, here’s a brief reminder.

Remember Pets.com? Its innovation was perhaps less about buying pet supplies online than about using cute sock puppets to promote its brand. The company lasted less than three years. Then there was Webvan, another hot internet company, which introduced online ordering for groceries to be delivered right to customers’ doors. That company enjoyed a five-year run before going bankrupt. How about 3dfx Interactive? You probably don’t recall that one at all, yet it was a big name in the computer gaming industry in the early 1990s as a graphics card producer. It took eight years to fold.

What’s the point? It’s easy for us to regret missing out on what turned out to be, in hindsight, some tremendous investment opportunity. Sure, you could have made millions investing in Qualcomm. But you could have lost your entire investment if you had chosen 3dfx Interactive instead. Back then it was not at all clear which company – if either – was going to succeed.

Even if you do happen to pick a long-term winner, the ups and downs of its stock’s performance are likely to try the patience of even the most placid buy-and-hold investor. Take The Walt Disney Company, one of the highest-returning stocks over the past 60 years. Despite its long-term success, its stock price dropped by nearly half during 15 out of those 60 years. Would you have been willing to hang on after such a loss?

There’s also the risk that if you happened to pick a winning stock once, you develop the false belief that it was your own skill in doing so rather than simply luck. Next time, you could go down in flames trying to duplicate that feat.

Because there exists no current data on which to base expectations of future stock price growth, many investors turn to historical price data or company fundamentals. But past prices don’t tell us anything about the future, and there are too many exogenous factors – for example, competition, supply chains, regulations – that can impact future company performance.

Rather than speculating on individual stocks, wouldn’t it make more sense to invest in the overall U.S. economy via broad market mutual funds or exchange-traded funds because there’s no way to know in advance how well a particular company is going to perform? You might not get rich, and might even lose money from time to time. But as long as capitalism continues to thrive throughout the world, you should do well enough. And there will be little to regret, because by investing in a market fund, you will have bought into every one of those tech winners.

Los Altos resident Artie Green is a Certified Financial Planner and principal at Cognizant Wealth Advisors. For more information, email This email address is being protected from spambots. You need JavaScript enabled to view it. or visit cognizantwealth.com.

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