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My WORST (and Best) Stock Calls of 2012

In the spirit of full disclosure, I regularly look back on my stock picks as a way of reminding readers that I am painfully aware of my own limitations as an investor.

But hey, at least I’m honest about them. Any market pundit who isn’t honest about his record isn’t worth reading. And any market pundit who doesn’t admit to mistakes is being dishonest.

Besides, by now every investor should understand that active management has obvious pitfalls — whether it’s for a big, underperforming hedge fund that burns clients, or whether it’s a retail investor like you and me picking stocks for fun and profit. There’s a reason the Vanguard model of passive, low-cost index funds has won more than a staggering $130 billion in deposits this year: It works.

But whether through hubris or just love of the market, we keep investing. So I hope this list of winners and losers is instructional and helps your performance in 2013.

5 Worst Calls of 2012

WORST CALL — Shorts that Soar: The headline “3 Overvalued Stocks Screaming ‘Short!’” from February was too much hype from the get-go, and the stock picks only made things worse. My bearish calls included Amazon (NASDAQ:AMZN), Salesforce.com (NYSE:CRM) and LinkedIn (NYSE:LNKD). They are all up between 25% and 35% since that call, while the S&P is up only 5%. Three big swings, three big whiffs. This and other bad bearish calls taught me that I am simply not a short trader, and shouldn’t act like one.

RUNNER-UP — Biotech Strikeout: In my July article “Swing for the Fences With These 5 Biotechs,” I admitted that playing speculative drug companies is frequently an all-or-nothing game. Well, all five of my stock picks are in the red since publication — including one down more than 60%. Swinging big is fine if you connect with the ball at least some of the time … but this article missed the mark every time. Consider me forever off the speculative biotech game after this one. It’s too sophisticated and complex an asset class for me.

DISHONORABLE MENTION — Overbought Blue Chips: In March, I highlighted some “triple threat” blue chips. The factors I looked at were dividends/cash, share performance and growth potential. Sounds good, right? Well, the screen identified Intel (NASDAQ:INTC), Caterpillar (NYSE:CAT) and McDonald’s (NYSE:MCD) as the “best” buys. But while the S&P is up almost 4% since publication, all of these stock picks are significantly in the red — between 10% and 25% on a share-price basis. The dividends shave that down a bit, but not much.

DISHONORABLE MENTION — Sears Screw-Up: In late 2011, I wondered whether Sears (NASDAQ:SHLD) could survive another 12 months and mused that it was the “beginning of the end” for the department store. Then In January, I panned SHLD as a possible short candidate. Well, that short-side bet was quite a crowded trade — and the wrong side of the trade, too. The resulting short squeeze caused the stock to more than double by March, and SHLD is up over 20% year-to-date. So I was very wrong in the short-term and remain very wrong almost a year later.

DISHONORABLE MENTION — Bad Answers: I frequently get questions from interested investors, and in late July, I fielded one about Office Depot (NYSE:ODP). I even doubled down with another bad call on ODP in September when I said the rally wouldn’t last. I called the stock a dud. It’s up more than 60% since then. And lest you think that’s the end of my bad advice to readers, Another ugly Q&A came in August in regards to discount retailers, where I recommended Dollar Tree (NASDAQ:DLTR) as the best of the bunch. It’s down 20% since that ill-advised response.

5 Best Calls of 2012

BEST CALL — Calling a Top AND Bottom in GMCR: This duo amazes even me. In March, I warned of trouble in momentum darling Green Mountain (NASDAQ:GMCR) thanks to expiring Keurig patents, critical mass and increased competition. GMCR has tanked 60% since. Then in May after another crash, I said that the worst was probably over. Shares are up 60% since that all-clear call. I honestly don’t ever recall getting both a top and a bottom right — but I did on GMCR this year.

RUNNER UP — Right on HP All the Way Down: Like many investors, I have a bad habit of sticking with an ugly call as it gets even worse, or changing course too early on a good call. It’s human nature, and it’s one of the biggest behavioral pitfalls in investing. But one stock I have gotten right every step of the way is Hewlett-Packard (NYSE:HPQ). I have maligned the stock for a long time, ever since I said it embodied the worst of corporate America in 2011, and kept panning the stock this year all the way down — in the spring here, and here, and after its ugly earnings in the summer and after a painful analyst meeting in October. The stock is off almost 50% this year — and even more from my earlier bearish writings. So I take heart in the fact that I actually stuck with this one and got it right … of course, the big question is whether I will continue to get it right in 2013. I’ve already started to thaw on my negativity by picking it as a speculative turnaround play for 2013.

HONORABLE MENTION — Healthcare Home Runs: In January, I highlighted healthcare investments that could outperform and pay big dividends, and all five are in the green. The Vanguard Health Care ETF (NYSE:VHT) and the iShares Dow Jones US Healthcare ETF (NYSE:IYH) were among the best major sector-based funds this year, with 16%-plus returns each, and the individual stock picks included home health company Lincare Holdings (NASDAQ:LNCR), which is up over 60% year-to-date in 2012 even without dividends. I continue to love healthcare as a sector thanks to demographic trends and its recession-proof nature.

HONORABLE MENTION — 7-for-7 on Bargain Buys: Often my lists of 5 or 7 stocks on a topic are a mixed bag that even themselves out. But this July list of seven stocks under $5 has a 100% winning percentage, led by almost 30% gains in Synovus Financial (NYSE:SNV) vs. just 5 for the S&P 500 since publication.

HONORABLE MENTION — An Apple Top: On Sept. 17, after Apple (NASDAQ:AAPL) crested $700 a share, I wrote that new money was buying a top in the stock. The timing of that one was spot-on… which is a pyrrhic victory, since I held my own shares anyway. We’ll see if my short-term call is matched by the wisdom of continuing to hold AAPL for the long-term through 2013 and perhaps beyond.

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he held a position in Apple but none of the other stocks named here.

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