One of the best posts I read this week was from Fortune’s Andy Serwer. In it, he noted:
At the end of 1999 the Dow was around 11,400. Today the Dow is at
8,400, which means the index has fallen some 26%, a decline of almost
3% per year. With just one year left in this decade – even if 2009 is a
humdinger – it is increasingly likely that first 10 years of this
century will be one big washout for investors. A lost decade.
I’ve
been thinking about that since I read it midweek. A lost decade in
which if you owned the Dow, you’d have lost money on stocks.
But there’s a problem with indexes and that is the average doesn’t
really tell you that much. So I want to look at the Dow stocks and
figure out which ones were big winners this decade and which ones were
big losers.
Here’s a list of the 30 current Dow stocks. Let’s take a look at six of them;
3M
Citigroup
GM
Intel
J&J
United Technologies
3M is up a bit in the “lost decade” about $10 or a 20% gain in almost 9 years. Nothing to get too excited about but not a loser.
As most everyone knows, Citigroup is fighting for its life right now
and is down at least 90% since the start of the “lost decade”. But for
most of this decade, it was flat. The drop has all come in the past
year.
GM’s chart looks quite a bit like Citigroups and it should. It is
also fighting for its survival. One difference though is that GM has
been in slow decline all decade and then dropped off a cliff this year.
Intel’s chart is interesting. It’s a loser this decade as well, down
almost 80% in the decade. But all of its decline happened in the first
three years of the decade reflecting the technology meltdown in the
first part of this decade. Since then, it’s bounced around a lot but
isn’t down much more.
Finally, a real winner. Johnson and Johnson has made a slow and
steady climb all decade, and is up (even with the recent market
meltdown) by about 33% over the past nine years. Even so, that’s less
than 4% per year.
I’m glad to see we found a good chart before this exercise was over.
United Technologies is down 40% in the past year but is up around 60%
for the decade so far.
So what this shows is the Dow is a mixed bag. A few disasters (GM,
Citigroup, Intel), a bunch of so so stocks (like 3M) and a some winners
(like J&J and United Technologies).
I looked at a few other stocks as I was doing those charts and
there’s a lot of yuck in the Dow. IBM, HP, and Wal-Mart are all down
for the decade. It’s not really clear to me how the Dow has enough
positive energy to withstand the blowups in AIG, Citigroup, and GM. As
a group, the Dow looks pretty tired to me.
The point I was trying to make with this post is that the decade we
are in has not been lost for everyone. We may have to go outside the
Dow to find the best examples. Lets look at two of my favorite stocks;
Apple and Google.
Apple has taken two big hits this decade (the tech meltdown in the
early part and the recent market bust) and is still up 3.5x in nine
years. The run Apple has had from early 2003 to late 2007 is one of the
most impressive runs I’ve seen.
Apple’s run mirrors Google’s run. If you had only owned two stocks
this decade, Apple and Google, you’d be a happy investor. Google stock
has completely blown up in the past year (down 60%) but it is still up
2.5x from its IPO in mid 2004.
When I think about what’s really going on in this “lost decade” it
occurs to me that we are finally witnessing the impact of the end of
the industrial era and the emergence of the information era. That’s not
to say every “information stock” has done well. Intel and Microsoft
have been a disaster. IBM and HP are down for the decade to date. But
we also have to realize that the late 90s drove all information stocks
up to crazy levels in anticipation of exactly this shift taking place.
The market got it right, but as usual it overshot.
If we go back to Andy’s post which got this whole exercise started, he made the following point about what happens after the “lost decade”:
at some point stock price returns will revert back up to the mean. In
fact, to revert to the mean, stocks will at some point have to exceed
the mean, in other words go up more than 8%. I know it could be years
off, but you see my logic. It’s just math.
And
if that does happen, I don’t think it will happen in tired stocks like
many in the Dow. It will be stocks like Apple, Google, and companies we
don’t even know about yet that will lead us back out of this downturn.
And I bet there will be a bunch of companies from what we used to call
the “emerging markets” that will lead us out of this mess. I think I’ll
call them the “emerged markets” from now on.
I am an optimist, I guess you have to be one to be in my line of
work. Even in the midst of the worst downturn in my lifetime, I am
thinking about what’s next, how we are going to make money in the next
run. Because as Andy points out, there will be one and we should be
using this downturn to position ourselves well for when it comes.
(For more from Fred, visit his blog)
(Image source: Thesettlementchannel)
