The Motley Fool used to be a great resource for investing, espousing index funds and low-cost investing, but it is gradually becoming just a factory that churns out stock tip newsletters. Last January, they made some Stock Predictions for 2006.
Read the predictions first, or at least skim the excerpts below. Which do you agree with?
#1: Shares of Google will fall in 2006
Wall Street didn’t want to buy into Google when it went public at $85, but now that the stock trades five times higher that that, bears are hard to come by. The humbled market mavens have responded with higher price targets, but gravity always seems to be just a disappointing quarter away.
#2: Both XM and Sirius will close out 2006 higher
Just as your cable bills creep higher every year, XM and Sirius will likely be charging more in the future. Tack on premium offerings and next-generation receivers that will blow the earnings potential through the roof — by allowing for everything from digital downloads to immediate responses to sponsored pitches — and I really believe that in five to 10 years, a lot of the bears will be licking their self-inflicted wounds for missing this obvious play into a promising duopoly.
#3: TiVo will bounce back
I’m expecting TiVo shares to bounce back dramatically, possibly even into the double digits. I still believe that TiVo — rich in brand, patents, and daydreams — will find a way to matter in a form that investors will find attractive. Cool companies never die without a fight.
#4: Six Flags will be one of the top stocks of 2006
With shares of Six Flags trading in the double digits for the first time in nearly four years, the market seems to be willing to give Dan Snyder and ESPN prodigy Mark Shapiro better than a fighting chance to turn the regional amusement-park operator around.
The stock may have tripled since bottoming out last year, but that doesn’t mean the value of the company has tripled. This is an important distinction to make. Because the company’s balance sheet is packing $2.1 billion in debt, the enterprise value of Six Flags has actually risen by just a little better than 50% to $3.5 billion. That’s the beauty of leverage in a turnaround situation: The stock can double here in 2006, growing sixfold in two years, yet the company’s enterprise value will have only doubled in that time.
Now, if you tracked these stocks this year you may already know which were right…
Fool Predictions Results:*
#1: Shares of Google will fall in 2006 – Wrong
Shares of Google (GOOG) actually rose 7.4% from $435.23 to $457.59.
#2: Both XM and Sirius will close out 2006 higher – Wrong x 2
Shares of XM Radio (XMSR) actually fell 46% from $28.15 to $15.21, while Sirius (SIRI) also fell 43% from $6.52 to $3.74. Ouch! Losing half your money has got to sting.
#3: TiVo will bounce back – Wrong
Shares of TiVo (TIVO) dipped 2% from $5.18 to $5.08. I just hope their software somehow ends up in all those DVR boxes. I love my TiVo, but I wouldn’t buy stock in it.
#4: Six Flags will be one of the top stocks of 2006 – Wrong
Six Flags changed their ticker from PKS to SIX, but that didn’t seem to help. Their share price still dropped 33% from $8.09 to $5.38. Considering the overall return of the US stock market was a ~16% gain, I don’t think that qualifies SIX as a top stock.
The important thing here is not just that they were wrong on all four points, they could have just as easily been right every time. What you should realize is that if you read the article a year ago, the reasoning behind the predictions would have sounded very logical and convincing.
Convincing… and 100% wrong. A good story means nothing! They each still have a 50% chance of being right or wrong. Sure, some will be right. Some have to be right. That doesn’t prove skill at all. As you start reading everyone’s predictions for 2007, I hope you’ll keep this in mind.
(For another view on this, see my post on the Anatomy of a Personal Finance Magazine Article. You may never look at one the same way ;))
* Prices are from 1/3/06 and 1/3/07 via Yahoo Finance.
For my overall thoughts on investing for beginners, please see my Rough Guide to Investing.