Top bought shares one year on

I find it curious that most of the large platforms are happy to promote their top bought shares and funds in any given week or month, but to get hands on average performance of accounts is much more difficult. Perhaps it's operationally more complex to produce the latter, but it might improve the value of the information in the former. 

Danny Cox, head of external relations at Hargreaves Lansdown, says: “We don’t think looking at average account performance encourages good investor behaviours or outcomes so this isn’t something we do.” This statement is defensible. As everyone is investing according to their own goals and risk profile, it might not be helpful to compare yourself to an arbitrary average which bears little relation to your own position. 

But does highlighting 'top of the stocks' encourage good investor behaviour or outcomes? A glance at the numbers suggests probably not. Top bought lists are “best ignored”, says Ben Yearsley, investment director at Shore Financial Planning. While it is interesting to see what people are buying and selling, “you shouldn’t make any investment decisions based on what’s on those lists” he says. 

As the meme stock saga of early 2021 showed, fear of missing out can be a powerful force in investing, and where you have more buyers than sellers the price goes up – so it’s not entirely irrational to be tempted by the stocks dominating the most-bought lists. But if you are investing for any length of time, letting a best buy list influence your decision making could do more harm than good and you risk buying when valuations have already been bid up.  

To put the theory into practice, we’ve had a look at the most-bought shares from this time last year to see how they are faring now. The answer is – not great. Of Hargreaves Lansdown’s 10 most bought shares in April 2021, half are in the black one year on, with an equal-weighted average one-year performance (total return) of 2 per cent compared with a 10 per cent total return for the FTSE 100 over the same period.

Freetrade’s most bought stocks from last April, however, have fared much worse. Only three are in positive territory 12 months on and their average 12-month performance is -22 per cent with names such as Cineworld (CINE), Coinbase (COIN), Deliveroo (ROO), Nio (US:NIO) and Palantir (US:PLTR) nursing losses of around half or more.      

Interactive investor (ii) showed most-bought stocks not included in regular investments, which averaged a fall of 11 per cent for the year to 26 April. But interestingly the performance of the stocks that were bought via regular investment plans last April have fared much better – with an average positive return of 16 per cent – suggesting that those who were not chasing the hot stocks of the day might have fared better in the longer run. ii is also the only UK platform I am aware of that publishes a ‘private investor’ index. Over the year to the end of March 2022, the average ii portfolio returned 5.4 per cent – in line with the Investment Association’s mixed investment 40-85 per cent shares category. 

Of course these numbers need to be taken with a large pinch of salt. Given the volatility of shares it could have looked very different had I compared, say, 12 months to the end of January – and it’s impossible to know how long these shares were intended to be held for. But it does suggest that appearance on best buy lists might not correlate with attractive long-term returns.

Freetrade

 Hargreaves Lansdown

Interactive investor