Regardless, being a Pollyanna about market volatility today probably won’t help you make any money in the long run and grow your savings. Is it true what many people are saying? Are times like these when the long term saver can benefit? Sure, dollar cost averaging and reinvestment of dividend strategies thrive long term under these conditions but until the pain is over, they remain just words and words offer very little comfort when red is flashing for as far as the screen can see.
It doesn’t hurt to have some real world examples of panics past to see how one could have benefited in the market even while suffering large drawdowns. For the purpose of this I went back and looked at the (adjusted for dividends and splits) closing price of a few stocks we all know on July 15, 2008. Why July 15? Well, it’s sort of in the middle of the peak to trough correction during the financial crisis, but still before imminent disaster seemed well observed. Shorter, there remained a much better time to be a buyer long after July 15.
Imagine the pain one must have felt buying in July, 2008. Let’s take a look of a short list of widely held names and the price you could have gotten nearly 7 years ago. The closing price Friday is next to it.
Amazon 67.03 570.88 Microsoft 21.57 50.99
Apple 22.56 97.13 Pepsi 52.47 93.93
Netflix 3.96 104.04 Wal-Mart 46.96 61.93
Google 258.30 710.49 McDonalds 45.92 115.21
Starbucks 6.24 57.58 Chipotle 72.34 475.94
Nike 12.93 57.55 AT&T 20.92 33.99
General Mills 25.41 54.74 Intel 16.16 29.76
IBM 105.30 130.03 Boeing 52.70 125.65
You can calculate the percentages on your own if you care that much. A few things to keep in mind. These selections represent a cross section of sectors that are not terribly difficult to understand. Were these cherry picked and represent a few outliers? Not really, there’s some dogs on hear too. What is the IBM bull case today? Still, if you bought it in the midst of the financial crisis, you’re still ahead! We’re not even going to mention how it traded to over 200 at one point either. Whoops, I just did. McDonalds, Wal-Mart, these two aren’t exactly hyper growth stocks. Pepsi sells sugar water and salty snakes and General Mills makes Cheerios. These aren't’ exactly risky bets.
Additionally, some of these names pay dividends, some quite large. Reinvesting those dividends over the past six plus years would have added to these gains handsomely. Are their oil companies and banks in which you'd still be down on having bought at this time? Yes, no question, but believe it or not there are a few oil names (the big boys) that are in fact still up even after the disaster of the past 18 months.
At this point you might thinking, “That’s great, but I could have gotten a much lower price later.” Absolutely true, no doubt. But if you’re still holding these, do you honestly care? Almost all of these were also substantially higher in the past year as well. Good luck grabbing one name at a generation bottom, let alone a list of stocks. It’s time in the market, not timing the market and finding good companies that are also good stocks. Try not to get bogged down in what a large index is doing at all times and try to find a quality name at a discount. It’s times like these you look to buy again.
P.S. Gold is up about 10% over this time frame, in case you’re wondering.