Three years ago, on June 10, 2014, the DJIA (Dow Jones Industrial Average) closed at an all time high, of 16,946.
Fast forward to today….3 years later….and the DJIA is even higher, near another new all time high of over 21,300.
In 2014, would you have expected the DJIA, an index of 30 large US stocks, to be 25% higher three years later, in 2017?
- This is why we stress discipline, patience and focusing on the long-term. This is why we try to take the emotion out of the investment process.
On June 12, 2014, I wrote the following blog post: What should you do now, with the stock market near an all time high? Please take two minutes and read this. I think you will find the perspective startling….and very useful.
At the time, I had just begun a commitment to write blog posts every week (see more on that commitment in this recent blog post).
This is an excerpt of what I wrote three years ago:
“What matters most and what you should focus on is developing a proper, globally diversified long term investment plan, so you and your family can benefit from the world’s stock markets over the next 5, 10, 20 or more years… If you are not invested in the stock market right now, yes, we would invest in a globally diversified portfolio for the future. If you are invested now, we would review your portfolio to see if it is globally diversified.” ~ from blog post dated June 12, 2014
A very different story
We do not recommend investing in specific companies, as you will learn why.
“You should not be thinking about what the economy or specific companies are doing right now. You should not be concerned with how Apple, Ford or IBM will do this week or next year. You cannot control or accurately predict any of this.” ~ from blog post dated June 12, 2014
GE, once a highly regarded company, has been by far the worst performing company in the DJIA since 2001. From a WSJ article** on GE’s stock performance since September 2001, let’s review some data:
- The DJIA is up 121% from September 2001 to now.
- From September 7, 2001, when the current CEO took office, to 2017, GE shares are down about 30%.
- Pfizer, down 11% in the same time span, is the only other current company in the DJIA that was down over these 16 years.
- At one point during the financial crisis, GE’s stock was down 80% from September 7, 2001.
- A few companies which have been removed from the DJIA during this period have performed even worse than GE:
- Citigroup down 84%, was removed from the DJIA in 2009.
- Alcoa down 58%, was removed from the DJIA in 2013.
- General Motors and Eastman Kodak both declared bankruptcy.
What is the point? For many years, GE’s tagline was “we bring good things to life.” That may have been true…. for their products. However, they have not brought good financial benefits to their shareholders over the past 16 years.
This is the risk of investing the majority of your money into individual stocks, certain industries or regions of the world. You cannot predict the future.
I doubt anyone would have predicted in 2000-2001 that GE, Pfizer, Citigroup or GM would be among the worst US large company stocks to own over the next 16 years.
How can you know what will be the best or worst performing stocks for the next 16 years?
This is why we strongly recommend investing in broad asset class mutual funds, on a global basis. By investing in asset class mutual funds, you benefit from the long-term growth of companies and the world’s stock markets, while minimizing the potential impact of the underperformance due to a handful of individual stocks to your portfolio.
Which do you think…. will bring good things to your life?
A. Picking GE, holding it, and taking the chance to vastly underperform the US and global stock markets.
B. Owning a portfolio of high-cost, actively managed mutual funds, which the vast majority underperform their respective benchmarks over most time periods.
C. Owning a globally diversified portfolio of low-cost, asset class funds which benefit from the long-term growth in US and global stock markets, while minimizing risk through multiple forms of diversification.
We recommend C.
**Source: WSJ, “Under Imelt, GE Was the Worst Performer in the Dow, ” June 12, 2017