On March 9, 2009, the stock market closed at it’s lowest level in over a decade. The doom and gloom news factories were pumping out negativity as loudly as it could because that was what “people wanted to hear.”
You couldn’t pick up a newspaper, click to highly trafficked website, or flip on the 6 o’clock news without hearing how terrible the U.S. economy was. Business pundits and money managers were saying the U.S. Dollar wasn’t going to worth the paper it was printed on and was about to collapse. Even a few outlandish perma-bears were spewing nonsense about a stock market going to zero.
And look where we are today…
From the close one year ago today, the S&P 500 is up around 68%.
I say this not to rub their face in the dirt, but to illustrate that to be a successful investor, you much think counterintuitively. Meaning, that if you’re a long term investor and you want to generate above average returns in the stock market, you can’t follow the herd and sell when the news is at it’s worst, only to buy back your shares when the financial news turns decidedly positive and says we’re back to happy days again.
Instead, you should consider adopting a counterintuitive approach (e.g. be greedy when others are fearful and fearful when others are greedy) by dollar cost averaging into a Plain Jane index fund or your favorite individual stocks when the news cycle is at its worst. Guys like Warren Buffett and Wilber Ross didn’t become household names because they bought Cisco at the height of the tech bubble. They bought large stakes in troubled companies during times of fairly high despair at substantial bargains (a buy on the dips methodology).
Hindsight is always 20-20, and picking the exact market bottom, while possible, is much like picking the winner number at the roulette table. However, for the sake of lessons learned, let’s take a hypothetical look back at how our portfolio would look had we bought, or perhaps dollar cost averaged into, some widely held buy and hold forever stocks at or around March 2009 when the news was at its most dire.
Apple is one of the most well known and widely held tech stocks in the world. Having hit a new all time high just days ago, Apple’s ROI would be ~150% having bought at or around the time of the stock market crash of 2009.
Bank of America
The rumors around BofA’s demise due to threat of nationalization was one of the most sensationalized stories of the 2009 stock market crash. Not surprisingly, these negative rumors pumped by mainstream media erased 25 years of stock appreciation and pushed BofA’s stock into low single digits.
However, the buy signal was sounded when Ken Lewis (Bank of America’s CEO at that time) bought several million dollars worth of BofA stock in a fantastic example of buy on the dips investing. Insiders know their company’s future better than anyone, so perhaps, it’s an indicator worth monitoring from time to time.
If you travel in an investing savvy circle, you would be hard pressed not to find someone who doesn’t own the GOOG as a long term, buy and hold forever investment. Had you decided to add to your position at or around the March 2009 lows, your investment has nearly doubled in just a year’s time.
Proctor & Gamble
Good ol’ P&G certainly isn’t the most sexy of companies (considering they make toilet paper and laundry detergent), but it’s also one of the most widely held defensive stocks on the NYSE.
Interestingly, had you bought P&G at our around the March 2009 lows, you would have underperformed the S&P 500 index by around 25% (excluding dividend payouts). Which just goes to prove that even though you may fancy yourself an expert stock picker and a whiz at fundamental research, there is still a good chance that you will not outperform the S&P 500 index.
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Disclosure: At the time of publishing, I do not hold any of the individual stocks mentioned in this post, but I do hold S&P index funds in my retirement account.