Beyond Terrible Stock Picks

by Paul R. Ruedi, CFP®

If you read these columns regularly, you know my opinion on people’s ability to pick the best stocks. I always explain why from a philosophical standpoint and mention the studies about how the vast majority of actively managed funds underperform their benchmarks. But what is perhaps even more important to understand is the devastation a single bad stock pick can cause. 

Case in point, the experience of investors in Beyond Meat. Riding high on a wave of enthusiasm for plant-based meat products, Beyond Meat decided to IPO at $25 per share on May 2nd, 2019. The IPO was very successful, and shares of Beyond Meat rose to a closing high of $234.90 on July 26th of that same year. 

The stock hit a rough patch during the pandemic and dropped to a low point below $50. But if you think a drop of that magnitude is what this column is warning about, just wait, there is more to the story. During the recovery from the pandemic Beyond Meat would recover extraordinarily well, rising to a closing high $192.08 in late January of 2021. It would then proceed to slide into oblivion the next four years and is now worth $0.60 as I write this.

There are a couple lessons here. The first is that chasing the performance of companies, industries, and asset classes that have done well recently often ends poorly. Those who chased the performance of Beyond Meat after the IPO paid dearly when the stock price fell significantly. Those who chased the strong performance of Beyond Meat during the pandemic recovery also paid dearly when the stock price fell even more significantly.

But perhaps the even bigger lesson is just how bad a loss can be when investing in individual companies. I think when investors buy an individual company they assume their worst case scenario is that the stock price doesn’t very much or at worst falls 20 or 30% in value. But individual companies can fall over 99% in value. Those who bought Beyond Meat stock near the most recent peak are down by over 99.6%. Even the people who bought beyond meat at the IPO price of $25 are down over 97% at this point.

I think it is important for investors to remember that if an investment in an individual stock goes poorly, it can be beyond destructive to your portfolio. If you are the type of person who will constantly be tempted to bet your wealth on individual companies, you may want to consider working with a financial advisor who can talk you out of it.  

Paul R. Ruedi is a Certified Financial Planner™ professional with Ruedi Wealth Management in Champaign, Illinois.