High-Tech Companies Are Low-Grade Investments

You're better off picking stocks in alphabetical order than investing in tech

By MARK ANDERSON / NOVEMBER 2010

Infographic: Michael Solita
Sources: Standard & Poor's S&P 500, SmallCap 600, MidCap 400 listings; S. Morgan Friedman's inflation calculator

Yes, Superman, we know—crime doesn't pay. But neither do tech stocks.

In an analysis for IEEE Spectrum, Kevin J. Murphy of the Marshall School of Business at the University of Southern California ran a simple algorithm that "invested" US $100 in the top 1500 companies listed in Standard & Poor's in early 2002—after the dot-com crash wreaked its havoc. And, assuming the investor reinvested all the stock's dividends, Murphy tracked the portfolio's value through the end of 2009, for the 1065 companies that were still listed.

Tech performed abysmally. Of the 118 tech stocks, 79 of them didn't even beat inflation. Just picking the first 118 stocks in alphabetical order beats the tech index by 25 percent. By comparison, the 110 mining and utilities companies on Murphy's index had an average return of $285 on the $100 investment, outperforming tech's $138 return by more than two to one.

Just about the only two standout tech companies were—no big surprises here—fourth-place Apple (which returned $2390 on the $100 investment) and seventh-place Amazon.com (which returned $1243). One genuine surprise was Chiquita Brands International, which came in second on Murphy's index, just behind mining and utility superstar Southwestern Energy Co. If you'd dropped $100 on this fruit company in 2002, you'd have had $2915 by the turn of the decade.

So, the adage is sort of right—an Apple a day...but even better, a banana.