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Marco is a trader of stocks, options, currencies, and futures. He has been fascinated with the financial markets ever since he bought his first stock at 11 years old. Marco entered the business world at the age of 13, with the creation of an extremely successful retail website... More
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  • Are Stocks Really for the Long Run? A Tool to Help You See Which Stocks Are the Safest 0 comments
    Apr 25, 2009 2:02 PM | about stocks: AA, AXP, BA, BAC, C, CAT, CVX, DD, DIS, GE, GM, HD, HPQ, IBM, INTC, JNJ, JPM, MDLZ, KO, MCD, MMM, MRK, MSFT, PFE, PG, T, UTX, VZ, WMT, XOM

    In times like this many of us wonder which stocks are the safest ones to hold on to for the long run. One way of seeing how safe a stock may be, is to take a look at the history of that individual stock. I originally posted this on my blog on April 24, 2009 which if you notice will be the close price below.

    Given the major stock market indices have rallied over 25% from their current lows set on March 9, 2009, I think it's fair to see how much the market would have returned if you started investing on April 23, 1999 (April 24, 1999 was a Saturday). Although I typically don't use the Dow Jones Industrial Average to get an overall picture of the stock market, I am going to use it for my example. I picked the DOW because it is said to be the most famous index in the world, not to mention that there are only 30 stocks to get data for. I understand the current DOW is not the exact same DOW from 10 years ago. However, it should give us a relatively good idea; this is because 21 of the components are the same Dow components as 10 years ago. The DOW components not in the index as of April 23, 1999 are: T (AT&T), BAC (Bank of America), CVX (Chevron), HD (Home Depot), INTC (Intel), KFT (Kraft), MSFT (Microsoft), PFE (Pfizer), and VZ (Verizon). So let's journey back 10 years and say we committed $1,000 to each component (Kraft was not spun out of Altria yet, therefore we cannot use that stock). We would have started with $29,000. ***Note*** The price on April 23, 1999 for each stock is adjusted for stock splits and dividends. The question is: How much would our portfolio of stocks bought on April 23, 1999 be worth today?
    Below is a summary of each Stock's movement in points and %

    Stock : Price Today : Price on April 23, 1999 : Change : % Change

    Alcoa Inc : $9.14 : $21.70 : -$12.56 : -57.88%

    American Express Co : $25.30 : $35.31 : -$10.01 : -28.34%

    Boeing Co : $38.72 : $34.18 : $4.54 : 13.28%

    Bank of America Corp : $9.10 : $23.9 -$14.8 : -61.92%

    Citigroup Inc : $3.19 : $26.15 -$22.96 : -87.80%

    Caterpillar Inc : $33.63 : $23.53 : $10.1 : 42.92%

    Chevron Corp : $66.60 :$34.83 : $31.77 : 91.217%

    Du Pont and Co : $28.78 : $48.03 : -$19.25 : -40.07%

    Walt Disney Co : $20.26 : $31.09 : -$10.83 : -34.83%

    General Electric Co : $12.11 : $28.45 : -$16.34 : -57.43%

    General Motors Corp : $1.69 : $50.3 : -$48.61 : -96.64%

    Home Depot Inc : $26.31 :$36.36 : -$10.05 : -27.64%

    Hewlett-Packard Co : $35.80 : $26.8 : $9 : 33.58%

    IBM Corp : $100.08 :$90.82 : $9.26 : 10.19%

    Intel Corp : $15.62 : $27.69 : -$12.07 : -43.59%

    Johnson & Johnson : $50.92 :$42.01 : $8.91 : 21.21%

    JPMorgan Chase & Co : $33.38 : $40.8 : -$7.42 : -18.19%

    Coca-Cola Co : $42.79 : $53.97 : -$11.18 : -20.72%

    McDonald's Corp : $54.31 : $37.08 : $17.23 : 46.47%

    3M Co : $57 : $32.15 : $24.85 : 77.29%

    Merck & Co Inc : $23.45 : $51.94 : -$28.49 : -54.85%

    Microsoft Corp : $20.91 : $35.73 : -$14.82 : -41.48%

    Pfizer Inc : $13.17 : $32.08 : -$18.91 : -58.95%

    Procter & Gamble Co : $49.51 : $36.62 : $12.89 : 35.20%

    AT&T Inc : $25.16 : $36.9 : -$11.74 : -31.82%

    United Technologies Corp : $49.37 : $29.64 : $19.73 : 66.57%

    Verizon Communications Inc : $31 : $38.09 : -$7.09 : -18.61%

    Wal-Mart Stores Inc : $47.87 : $45.92 : $1.95 : 4.25%

    Exxon Mobil Corp : $66.57 : $31.56 : $35.01 : 110.93%


    As you can see if you would have invested $1,000 in each of the 29 DOW components 10 years ago, you would be down $2,276.67 or 7.85% today. As noted before, the prices 10 years ago are adjusted for splits, spin offs, and dividends. Now to answer the question: Are stocks really for the long run? Well it depends on what someone considers the long run, and how much risk someone is willing to take. I am someone who can take a lot of risk, considering I am 22 years old, but when I have a decent gain on common stock, I find it very hard not to sell the stock, or at least some of it. In my opinion, the "buy and hold" strategy does not work well. Unless you find a company in its very early stages (when they experience the majority of their growth), most likely you will not experience any massive gains over a longer period of time. However, one conclusion can be drawn quite clearly from this experiment. A diversified portfolio is an extremely good thing to have for a long term investor. Imagine if you were heavily weighted in a stock like Citigroup or GM versus a diversified mix... A near 8% loss is much better than about 90%. You see the numbers, unless you were heavily weighted in the 40% of stocks that happened to appreciate over the past ten years, long term investing definitely would not have paid off.

    I have created a spreadsheet for those who would like to download it (Excel 2007 recommended). It has the 30 Dow Jones stocks, and updates daily with the close price, high, low, etc... Also is the close price for each of the stocks (excluding Kraft) from April 23, 1999 which is now over 10 years ago. Press "data" and then "refresh" to get daily updates on each components pricing. You'll be able to see which stocks have been the best performer(s) of the DOW on a day to day basis (from April 23,1999, but can easily be changed to any date you'd like by entering in the stock price from any date you desire). With this spreadsheet you'll also be able to see which stocks would have been worth having for the long run (according to the spreadsheet anything over 10 years, but as stated before can easily be changed). This spreadsheet may also be utilized as a tool to help you get a better idea of which stocks are more conservative, and may better your portfolio in the long run (that's anything over 10 years). I created this spreadsheet for those who would like to get an idea of which stocks (sectors) are safest for the longer term investor. To download this spreadsheet click here.

    If you find this article hard to read due to certain color schemes, try viewing it

    here

    Long: AXP, BAC, CAT, GE, PFE

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