As much as I have appreciated the simplicity, low cost, and generally satisfactory results of low cost index funds in some of my accounts over the past few decades, I still see many advantages in accumulating individual stocks. On some occasions when I have mentioned "individual stocks" to colleagues or clients, I have been asked if that means I am a stock picker, or if I believe I can pick stocks that will "beat the market". While I do believe there are repeatable patterns and biases in stock markets that increase one's odds of outperforming a benchmark, I also believe building a robust, quality portfolio of a small handful of stocks you know well.
In this article, we examine how a "buy and hold" portfolio of 10 stocks that could have been reasonably selected in 1980 from the top of the Fortune 500 list of that year would have performed versus the Vanguard 500 Fund Investor Class (VFINX) as a benchmark. In selecting the stocks, we go down the list and try to choose one of the first names from each distinct sector or industry group. I could not think of a way to completely eliminate survivorship or hindsight bias, so simply choose stocks that had reasonable long-term charts while keeping the effects of those biases in mind. 40 years was also the chosen time horizon because that's about as far back as YCharts seems to have total return data on many of these stocks. At the end, we will compare how $10,000 invested evenly in each of these 10 Fortune 500 inspired ideas would have compared to simply putting the same $100,000 in the S&P 500 index fund. For easy comparison, all charts below are in the format of "Growth of $10,000", plotting total returns with all dividends reinvested assuming no taxes or transaction costs.
