Ten years on, where buy-and-hold actually worked


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Yet another “lost decade” anniversary: Ten years ago Wednesday was the peak of the Standard & Poor’s 500 index in that era’s bull market.

The S&P topped out at 1,527.46 on March 24, 2000, two weeks after the Nasdaq composite set its all-time closing high of 5,048.62.


The S&P then dived 49% in the following 2 1/2 years, finally bottoming at 776.76 on Oct. 9, 2002.
The tech-dominated Nasdaq collapsed all the way down to 1,114.11 by Oct. 9, 2002 -- a loss of 78% from its 2000 peak.

Nasdaq has never since gotten near those ridiculous heights of 2000. But the S&P 500 eventually did surpass its 2000 peak, reaching a record high of 1,565.15 on Oct. 9, 2007 (yes, strange coincidence that it was exactly five years to the day of the 2002 low).

At 1,167.72 on Wednesday the S&P was down almost 24% from 10 years earlier, not including dividends. Hence, the lost decade for a buy-and-hold investor.

But buy-and-hold since 2000 has not been the total bust that the overall index numbers portray. Depending on which stocks were purchased on March 24, 2000, a buy-and-hold investor could have reaped stellar returns over the last decade.

Mostly, you had to stay away from technology issues -- which, of course, were the stocks everyone wanted 10 years ago -- and buy shares of businesses that were humdrum, and cheap, by comparison.

A lost decade? Not for shares of heavy-equipment producer Caterpillar, which are up 214% in the period, despite suffering through two vicious bear markets.
A cross-section of other notable winners: Exxon Mobil, up 72%; drugstore chain CVS Caremark, 98%; cereal titan Kellogg, 123%; Procter & Gamble, 125%; FedEx, 128%; retailer Nordstrom, 192%; and railroad giant CSX, 320%.

Note, too, that those returns don’t include dividends paid over the decade. Counting dividends, Caterpillar’s 10-year return is almost 300%, Procter & Gamble’s is about 184% and CSX’s is more than 400%.

I know, it always looks easy in hindsight. And the numbers obviously were a lot less impressive at the market’s low a year ago.

Still, some investing rules never go out of style: Try to buy good businesses, try to get them when they’re relatively cheap, and don’t underestimate the power of dividend income over time.

And the cardinal rule: Stay well-diversified -- because bad things can happen even to good businesses, which is what a lot of big-name financial companies would have looked like 10 years ago.

-- Tom Petruno