Although it initially stumbled after reports on Monday that one of its 737 passenger planes operated by China Eastern Airlines had crashed, boeing (New York Stock Exchange: BA) stocks were flying again on Tuesday.
At least part of that rebound can be attributed to the fact that the plane in question was not a 737 MAX, almost all of which were grounded after two accidents in late 2018 and early 2019. The planemaker is still positioned to travel safely in the post-pandemic uptick in leisure travel, and investors can take advantage of that recovery, while Boeing shares are priced at less than half of their 2019 high.
Before you pull the trigger on a purchase of this particular Dow Jones Industrial Average (DJINDICES: ^ DJI) member, take a step back and consider an investment in Dow. It is certainly a less stressful and time-consuming option.
Consider Your Personal Situation First
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Each investment option has its pros and cons, to be clear. Boeing and a basket of the 30 stocks that make up the Dow Jones Industrial Average are no exception to this rule.
Boeing, for example, will benefit from the eventual recovery of leisure travel that had been affected by the COVID-19 pandemic. Still, it’s tarnished reputation The 737 MAX’s problems could persist for years. The Dow Jones is a basket of blue-chip stocks, but even blue-chip stocks can run into headwinds from time to time. Intel and 3M they are components of Dow, for example, but each has been a lackluster performer for some time now, weighing on the overall performance of the index.
Every investor has a unique situation. You may already have a lot of exposure to the travel industry with a name like stock reservation or Hyatt Hotels. Adding another related stock may or may not further diversify your portfolio. Or maybe you don’t have exposure to cyclical stocks and are likely to miss out on any advantage of the continued economic recovery by not owning them.
Assuming the risks and rewards are essentially identical between the two options of the Dow Jones Industrial Average or Boeing, the Dow wins the vast majority of the time for most investors.
No one can predict the unpredictable
In the long run, Boeing will be fine. It has faced comparable difficulties before, and the world will need a lot of new planes sooner or later.
In its most recent outlook on the subject, the company says growth in natural resources travel demand it will require the delivery of 43,610 new passenger planes between now and 2040. Assuming no commercial airliner is in a position to build that many planes anytime soon, Boeing’s market share should remain significant. Shareholders who have owned shares since 2019 take comfort in this general trend.
Yet shareholders who are intellectually honest with themselves wish they had known then what they know now.
This is one of the main pitfalls of choosing individual stocks. When you pick the right one, it’s a lot of fun. However, if you pick one that runs headlong into unpredictable trouble, it can hurt. And that damage goes beyond the halving of Boeing stock since 2019. There’s also the element of missed opportunity. The Dow Jones Industrial Average is up 34% from the point where Boeing shares peaked, far outpacing the sharp sell-off it suffered when COVID first hit the United States in early 2020.
Start with the security that only numbers can offer
We now know that Boeing is one of the recent Dow deadweights, but we didn’t know that would be the case back then. It is possible that in early 2019 we would have gone into Dow components like Apple or Microsoft, which are up 265% and 155%, respectively, over the same time period. But then again, we didn’t know how things would turn out in the next two years. That is the point. No one can predict the future and how it might affect a particular stock.
Additionally, since most investors have jobs, families, hobbies, and other interests that prevent them from constantly monitoring multiple individual companies, it is unlikely that the average investor will be able to maintain the vigilance necessary to effectively manage the risks of individual stocks. . That is especially the case if his entire portfolio consists of nothing else.
Still not convinced? Try this on for size. In its most recent numerical analysis of the data, Standard & Poor’s reports that only about 15% of US mutual funds outperformed the S&P 500 (SNPINDEX: ^GSPC) last year. Extend the time frame to five years, and the mutual fund’s outperformance rate only improves to around 26%.
If professional stock pickers equipped with tons of information can’t even do it, it will certainly be difficult for the amateur.
Bottom line: At a minimum, most investors should base their portfolios on a large block of index funds, just adding individual selections that are not only more predictable than Boeing, but also easy to monitor. In other words, whenever you can, always opt to keep things safe and simple.
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james brumley has no position in any of the mentioned stocks. The Motley Fool owns and recommends Apple, Booking Holdings, Intel, and Microsoft. The Motley Fool recommends 3M and Hyatt Hotels and recommends the following options: January 2023 long calls $57.50 at Intel, March 2023 long calls $120 at Apple, January 2023 short calls $57.50 at Intel and short calls from March 2023 to $130 at Apple. The Motley Fool has a disclosure policy.