The period from January 1, 2000 to December 31, 2009, the country suffered one of the worst market downturns reeling from one crisis after another. During that period, both the NASDAQ and the Dow saw all-time highs and devastating lows. The S&P 500 returned negative 0.99%.
People lost money. Lots of it!
Was it possible to stay invested during that period and still come out smiling? I decided to do a little experiment in stock picking.
But first, here’s my criteria:
- I’m a firm believer of dividend paying companies with stable revenue streams. All my 15 picks reflect that
- I have as much aversion to financial stocks as Buffett has towards technology stocks. No financial stocks
- I’m a big fan of Buffett, so no technology stocks either!
The closing price as on March 10, 2000 is used as the purchase price for all 15 stocks. Why?
Because this would be the worst possible date to purchase stocks, if you were to pick a date from 2000 to 2009!
This was the day when NASDAQ peaked at 5132.52 and is yet to recover! (Buying high!)
No subsequent stock purchases are made and dividends received are not reinvested (using the worst case scenario again as the basis of this experiment). Commissions and taxes are excluded for simplicity.
The stocks I picked are actually quite unremarkable! All are low beta, dividend paying, defensive stocks. Most of these stocks were shunned by investors for high beta technology or finance stocks during that time!
The portfolio and its performance!
Total gain of 65.42%!
In addition, you would’ve recovered 44% of your total purchase price from dividends.
The results speak for themselves. I chose the worst possible day to buy stocks by buying high, used the most inefficient use of dividends by letting it sit as cash and yet, by investing in defensive, blue chip companies, I actually come out 65.42% richer! Also note that I’m excluding the market recovery of 2010 (lost decade, duh!).
What is interesting is not my choice of stocks, but the fact companies with stable revenues might be boring, but those are your best bets to survive another lost decade.
DISCLOSURE: Long all stocks mentioned above.