Savant Wealth Management

Does the thought of stock-picking appeal to you? As you evaluate your options, you may come close to making one or both of the following mistakes.

Mistake #1: Ignoring Company Valuations

Many stock-pickers choose stocks based on a company’s perceived winning prospects and pay a premium price relative to earnings. You may be dazzled by a company’s exciting innovations, recent stock split, or financial talk show appearance. The news may be good for business. But remember, as a stockholder, you become a company owner. The more you pay for your stake relative to real company value, the more speculative your position becomes.

For example, in 1998–1999, Cisco Systems (CSCO) stock price grew until investors started paying $80 per share at its March 2000 peak. By then, the price was 196 times Cisco’s $0.41 per share earnings. In hindsight, we now know that Cisco investors bought a solid business in March 2000. As of April 1, 2022, Cisco’s earnings had increased seven-fold since the peak in March 2000. The problem is that more recently, investors overpaid for that business. Today, Cisco is trading at $55.66/share.

Mistake #2: Fixating on High Dividends

Unfortunately, high-dividend companies are usually slower-growing businesses, with worse prospects for share-price appreciation. If they pay out their cash to you, the company has less to fuel future growth. Before investing in a high-dividend stock, consider how much that company is bleeding out in earnings. If it keeps up its dividend distribution pace, will it be able to grow its underlying value faster than inflation eats into it?

Successful stock picking is usually more a matter of luck than skill. You’re likely better off investing in low-cost mutual funds or exchange-traded funds (ETFs) to invest in wide sections of the global market. You win some and lose some, but we believe it’s likely you’ll win more than you lose in the long term.


This is intended for informational purposes only and should not be construed as personalized investment advice. Please consult your investment professional regarding your unique situation.

The securities identified and described were provided for illustrative purposes only and do not represent securities recommended for client accounts.

Author John A. Frisch Financial Advisor / Managing Director

John founded Alliant Wealth Advisors, where he served as president until it joined with Savant in 2022. Strongly committed to community service, he founded the Prince William Financial Institute to provide networking and education opportunities for financial professionals in Prince William, VA.

About Savant Wealth Management

Savant Wealth Management is a leading independent, nationally recognized, fee-only firm serving clients for over 30 years. As a trusted advisor, Savant Wealth Management offers investment management, financial planning, retirement plan and family office services to financially established individuals and institutions. Savant also offers corporate accounting, tax preparation, payroll and consulting through its affiliate, Savant Tax & Consulting.

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Savant Wealth Management (“Savant”) is an SEC registered investment adviser headquartered in Rockford, Illinois. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments and/or investment strategies recommended and/or undertaken by Savant, or any non-investment related services, will be profitable, equal any historical performance levels, be suitable for your portfolio or individual situation, or prove successful. Please see our Important Disclosures.