For this month’s issue, I spoke with investment adviser Martin Fridson about how to identify the best-performing stock in the S&P 500 index. Not the stock that merely outperforms, but the S&P 500 stock that will realize the biggest return over the next 12 months.

Speculative? Absolutely.

While we are proponents of long-term investing, telling people to never speculate is akin to telling people to never eat dessert. Yes, it is healthier to skip those delicious pies and sundaes, but diets often fail because they are too restrictive. Allowing a little room for fun can make it easier to stay disciplined over the long term.

If you’re going to stray a bit from a long-term approach, do so in a controlled manner. Fridson suggests allocating only 1% or 2% of your overall portfolio to picking a stock you believe will be the number-one stock in the S&P 500 over the next 12 months.

Also, have rules guiding your process. Just as you shouldn’t go hog-wild at the dessert buffet (unless you want a stomachache afterward), you shouldn’t speculate on stocks in a willy-nilly fashion. Even simple criteria will improve your odds of success.

Fridson shares the characteristics he found to be associated with the top-performing stocks in “The Little Book of Picking Top Stocks: How to Spot the Hidden Gems” (Wiley, 2023). I spoke with him about his research. A key underlying theme was the importance of surprises. New information not priced in by the market—particularly events leading to higher cash flows—is what drove stocks to be number one. 

Not All Retirement Accounts Are the Same

For many years, the Internal Revenue Service (IRS) has published a rollover chart. It shows what kind of retirement accounts can be rolled over into another account.

We published a version of it in July 2016 (“IRA Rollover Chart: Rules Regarding Rollovers and Conversions”). In this issue, we revisit the chart and expand upon it. The rollover chart is a classic case of just because you can doesn’t necessarily mean you should.

There are key differences between the various types of retirement accounts. Costs and limitations of investment choices obviously matter when it comes to deciding what to do with your 401(k), 403(b) or 457(b) plan account when leaving a job. Required minimum distributions (RMDs) can be aggregated for some types of retirement accounts but not others. Protection from creditors also varies by account type and what state you live in. We explain those differences in the article.

Remembering Derek Hageman

Soon after the April AAII Journal was finalized in late March, we lost AAII’s Derek Hageman to illness.

Many of you got to know Derek through his work as the editor of AAII Dividend Investing (DI) or his many articles in the AAII Journal. You may have seen him present or participate in an AAII webinar. Some of you were fortunate enough to have met Derek in person.

To those of us at AAII, Derek was both a colleague and a friend. He was a pleasure to work with and talk to. Derek consistently hit the right mix of professionalism, hard work, creativity, collegiality and humor.

In his first DI weekly commentary, Derek coined a phrase that was associated with him from that day forward: “Wishing you green arrows.” The phrase is a reference to the upward-pointing arrow we show on the DI website for a stock that has increased its dividend. We now also use the upward-pointing arrow for stocks, mutual funds and exchange-traded funds (ETFs) whose A+ Investor Grades have improved. Nevertheless, it will be impossible for any of us to say “green arrows” without thinking of Derek.

Beyond DI and the AAII Journal, Derek was involved in the oversight of all AAII model portfolios, contributed to project development and enhancements and managed our research staff, among other tasks. He brought fresh, exciting ideas to our First Cut Stocks screening articles. As a tribute to him, we’ve included an updated version of his First Cut article that he playfully titled “Up, Up and Away: Biggest Rising Dividend Payers.” 

In the weeks since we first announced his passing, many AAII members have kindly shared their memories and appreciation of Derek. It’s a testament to who he was as a person. Derek, we miss you.

Those wishing to make a donation in honor of Derek can do so at the Pancreatic Cancer Action Network website.

Sincerely,