10 Year Stock Performance….Most stocks can’t beat inflation
- 5 Comment
As I sit here watching CNBC during the last few days, I am amazed by the recent volatile activity in the markets. On the CNBC HD channel, on the right side of the screen there is a feature that highlights the stock performance over multiple time periods (1 day, 5 days, MTD, YTD, 5 years, and 10 years)…. As each stock scrolls through, the majority of the tickers were showing negative performance for all of the above periods…
Seeing this small set of data points, I was wondering if it paid out to be stocks over the last 10 years. To keep my analysis to a reasonable amount of stocks, I selected to review the current 30 components of the Dow Jones Industrial Average. From October 31st, 1998 through October 31st, 2008, the index gained 8.7% over the 10 year period, resulting in a compounded annual growth rate (CAGR) of 0.8%.
The metric is easily surpassed by the inflation and T-bill rates during the same periods. In looking at each component, the highest CAGR was captured by United Technologies (UTX) with 10.4% annual gain and the worst performer of the group is awarded to General Motors Corp (GM) losing -16.5% per year. Please note this returns have been adjusted for splits and dividends and are calculated on a pre-tax basis. There was a similar performance for the S&P 500 with a CAGR of -1.3%.
Here is the full table of the 30 stocks:
With this analysis, the question I have to answer for my portfolio is: Is this a time where Mr. Market is pricing equities on the lower end and I should invest in stocks? or should I just focus on investing in TIPS so that I can keep up with annual inflation benchmark?
What would you do?
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5 Comments on this post
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Pinyo said:
Looking at just the last 10 years may be misleading. Personally, I think this is a great time to invest in the stock market. However, a wise policy would be to follow your fixed-income versus equity allocation and invest accordingly.
November 9th, 2008 at 10:53 am -
Curt said:
I think the stock market has been a bad deal for the last 10 years, and the dropping stock market should prove that the Wall Street cheerleaders have been dead wrong. Now all they can say is the same thing they always say, that this is a great time to invest.
I think most investors don’t really have a clue which way the market is going to go. They just find enough statistics and an article from the cheerleaders on Wall Street to make them feel good about their investments.
November 9th, 2008 at 5:27 pm -
Mike D said:
I have also been looking at GE, especially since it is trading very close to its 52 week low. My only concern is one of your assumptions: that GE will continue to grow its dividends as it has historically. Mr Buffet’s emergency investment in GE (at an unfavorable rate rate for GE) has me questioning GE’s true cash position. Even Jack Welch has been very critical of GE’s management. Even so, I have not given up on GE and may put a small investment play on them.
November 10th, 2008 at 9:31 pm -
Mark said:
Interesting post.
I’ve done some similar work analyzing calendar year returns on the S&P 500 since 1831. It turns out the return over the past 10 calendar years are the worst on record.
http://www.planbeconomics.com/2009/01/07/worst-10-years-on-record/
January 9th, 2009 at 11:30 pm -
Sensual photography said:
Does anyone know if a new performance car ie 2L engine with a turbo and sports exhaust, has a shorter life span than a stock car? Assuming both cars were driven carefully and looked after the same way, and driven for 10, 20, 30 years etc..
June 1st, 2009 at 9:44 am
