Here’s a fun thought experiment. Suppose you had $15,000 to invest evenly in fifteen different companies back before the Great Recession. Then you let it ride through the market’s downturn, holding your investment instead of selling anything. How much would you have today?
We let MSN crunch the numbers, and we did two things. First, we made a blue circle equivalent to the $1,000 initial investment, which is the same size for each company. Second, the pink circle represents the total value of the investment today. The larger the pink circle, the more your investment is worth. Obviously, if the pink fits inside the blue, then you lost money.
The viz makes one crucial assumption you have to keep in mind. We assume that you took any dividend paid out in cash and did not reinvest it back into the company by buying more stock. This means that you have to pay a capital gains tax on any dividends as you hold the stock, unless it is part of a tax-sheltered account like an IRA. Understanding the difference between dividends and annualized growth in a stock is important as you compare relatively new companies like Netflix to old ones like GE.
That being said, our graph provides a quick snapshot of the U.S. economy over the past several years. First and foremost, you can easily see which companies have been winners and losers, and as a result you can infer significant changes in the economy. Netflix is the obvious standout. $1,000 invested ten years ago would be worth a whopping $51,966 today, which is by far and away the best performance in our graph. Netflix made a big bet that it could profitably create its own content. It wasn’t clear this would pay off back in 2007, and it remains to be seen how Netflix will compete with the proliferation of other streaming services.
We hasten to add that a stock’s past performance is certainly no guarantee of future returns. Take a look at GE, the company in last place. $1,000 invested ten years ago would have dropped by more than half to a measly $490 today. GE has been around for a long time and is currently undergoing significant structural changes. The new CEO just announced the deepest cut to the dividend since 2009. If your philosophy is to buy low and sell high, dropping Netflix in favor or GE might be a smart move.
Looking at stock prices is a good barometer for judging the overall economy. All things being equal, prices seem pretty high right now. In fact, most of the companies on our chart have seen significant gains in recent years. Think about it. Investing in the lowest performers like Microsoft, FedEx, and Walmart would still have doubled your money. Investors focused on long-term capital appreciation would take those results every time.
Data: Table 1.1