Better buy: Nike or the 30 shares of the Dow Jones? | Smart Change: Personal Finances


(James Brumley)

If you are considering a new investment in Nike (NYSE: NKE), you’re not crazy, and you’re not alone. The 33% sell-off in the stock this year is enticing. The popular sportswear brand is clearly subject to challenges such as broken supply chains and major military invasions. But it is also a name that will last. Shareholders who have historically bought in dips like this have been well rewarded.

Before diving into this Dow Jones Industrial Average although it’s relatively cheap, you might want to take a step back and make sure it fits into your overall picture. This may not be suitable for everyone.

Start with security in numbers

Nike is a top name in the global sportswear market and outright dominates the sports footwear market, selling $46.7 billion in merchandise last year, up 6% despite ongoing challenges. to the COVID-19 pandemic.

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The continued growth of its e-commerce business, along with the continued expansion of its own brick-and-mortar retail footprint, gets much of the credit. But the name of the brand itself too. Vistaprint claims that the Nike “swoosh” is the fourth most recognized corporate logo in the United States, behind those of Apple, McDonald’sand Coca Cola. It’s a powerful influence on the psyche of consumers, and one of the main reasons why projected revenue growth of 8% this year is expected to accelerate to 10% next year.

These growth prospects, however, do not inherently make Nike a buy, especially if your portfolio is not yet filled with at least 10 different stocks and types. A number closer to 20 is better, and even then Nike isn’t necessarily in the “top 20”.

The better, easier start option? Buy a general index fund like the SPDR Dow Jones Industrial Average ETF Trust (NYSEMKT: DIA)which is meant to mirror the performance of the aforementioned Dow Jones Industrial Average.

It’s not the fascinating foray into the market that most newcomers want; it’s also not very exciting for seasoned investors. It’s a smart trade all the same, for the simple fact that it connects you to a basket of top-notch stocks that you can rely on for the long term. If this was the only stock investment you’ve ever had when you needed the growth that only stocks can provide, it wouldn’t be a faux pas.

The challenge with such a holding is to resist the temptation to cash in and aim for higher returns than most indices can offer. Many (too many) investors assume that a more active approach translates into bigger gains.

Nothing could be further from the truth, however, and there is eye-opening data to back this claim up.

Seriously, Consistently Successful Stock Picking Is Hard

You would think that the mutual fund industry as a whole would be made up of the most prolific stock pickers in the world. After all, fund companies have access to all sorts of data and tools, and also have deep pockets to pay the most qualified people the best price to manage their funds.

Such an assumption, however, is irrelevant at best.

S&P Global crunches the numbers every year, and every year finds the same thing. In other words, most large-cap mutual funds available to US investors fail to outperform the S&P500. Last year, 85% of funds followed the 27% rise of the S&P 500.

Think about it. In a year when it was very difficult to not make quite a bit of money in the market, most of the presumed best of the best couldn’t even do the one thing they’re supposed to do. The 85% figure is also more or less in line with previous years.

And giving these professionals more time doesn’t help much, if at all. Over the past five years, 74% of large-cap funds have underperformed their main benchmark. Over the past 10 years, 83% of large-cap mutual funds have tracked the performance of the S&P 500. The numbers don’t look significantly better for mid- and small-cap funds, and neither value funds nor does not seem to offer any advantage to fund managers limiting their choices to only these categories.

The moral of the story is that if full-time professionals struggle to do so, part-time amateur stock pickers might have just as much trouble, if not more, to beat the market.

Just food for thought

There are exceptions to every rule, of course – even a rule of thumb like this. It’s entirely possible that you have the mental tools to consistently beat the market by identifying its top stocks. Nike has a good chance of being one of those names; it has certainly outperformed the market for most of the past two decades.

Still, until you have a fully diversified base for your portfolio of stocks that are less volatile than Nike, this particular pick isn’t the best bet, and certainly not a great first pick, or even one. top picks for a new portfolio.

Start with a simpler, easier-to-own holding like the SPDR Dow Jones Industrial Average ETF Trust, then feel free to stop there if you’re not interested in keeping tabs on a bunch of individual stocks. Many others have done this same thing, with no regrets.

10 stocks we like better than Nike

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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Apple, Nike and S&P Global. The Motley Fool recommends the following options: $47.50 Long Calls January 2024 on Coca-Cola, $120 Long Calls March 2023 on Apple, and $130 Short Calls March 2023 on Apple. The Motley Fool has a disclosure policy.


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