Risk can be a game- changer

Q: Why are ‘ hot stocks’ now cooling off?

A: It’s hard to blame investors who thought picking stocks was easy in 2015. Just buy shares in popular growth stocks such as restaurant Chipotle, electric- car maker Tesla, apparel maker Under Armour and maybe a hot alternative energy play such as First Solar and watch the money roll in. The game has changed. Shares of Chipotle are down more than 25% this year amid plunging revenue and profit.

Tesla shares are down this year, too, although a surprise profit reported late Wednesday trimmed the losses. Under Armour and First Solar skyrocketed 19% and 48%, respectively, in 2015. This year, though, they are down 21% and 38% respectively. The underperformance of these “growth” stocks isn’t a surprise. Growth stocks, those that trade at high prices compared with their net worth, are poor performers relative to their risk.

The Index Funds Advisor Large Growth index, which contains expensive stocks, has generated a long- term average annual gain of 9.1%. That’s below the 9.7% average annual gain by the Standard & Poor’s 500. Large growth stocks also are 17% riskier than the S& P 500.

That’s a bad trade- off.