Over the weekend I came across an interview I gave to The Wall Street Transcript ten years ago almost to the day. I read the interview with great interest since the last ten years have been a difficult time for investors. In the article I recommended five stocks for purchase and those five stocks provide the perfect opportunity to examine my third premise: investing for the long-term is accessible to the average individual.
On April 14, 2003 the five value stocks I suggested to the TWST were all considered to be high-quality, well-managed companies, each out of favor for some reason. (You can read the interview for the specifics.) As a value investor my premise then was the same as it is now–buy great companies when they are cheap and hold them for the long-term.
The five stocks I discussed in April of 2003 were Genentech (DNA–purchased by Roche Holdings in 2009), Cisco (CSCO), Disney (DIS), Citigroup (C) and General Electric (GE). In the table below, the performance for each stock is calculated on a weekly basis from the close of trading April 11th 2003 (the last trading day prior to the Monday, April 14th publication) through the close of trading Friday, April 12th, 2013. The first column represents the absolute return for each stock over the entire holding period. The second number represents the average annual return. Below the five stocks you will see the performance of the S&P 500 and the combined (equally weighted) performance of the portfolio of five stocks over the same period.
DNA 432.9% 32.5%
DIS 286.8% 14.5%
CSCO 70.7% 5.5%
C -84.8% -17.2%
GE 20.1% 1.8%
S&P 109.4% 7.7%
PORT 249.7% 9.6%
What can we conclude from the performance of these stocks? Three things. Diversification is always important. Despite making sound, thoughtful investment decisions we cannot possibly know which stock will quadruple and which one will tank. But, we do know that if we diversify our holdings into different industries (Biotech, Entertainment, Technology, Banking and Industrials, for example) we have a better chance of collectively generating excess return. The second thing we learn is that we can have one or two laggards and still do as well as or better than the market. And thirdly, over time well managed companies, for the most part, manage to fix their problems and return to growth.
Make a list of the companies whose products you use on a regular basis. Then, begin to watch the stock. Charts are readily available on Yahoo Finance and you can begin building a knowledge base on each company. It is knowledge, after all, that provides the courage to buy stocks when they are cheap and makes investing accessible to the average individual.
(Recently I blogged on one of my favorite stocks–Coca Cola–at nerdwallet.com. Read my post for ideas on what to look for.