15 Stocks To Survive Another Lost Decade

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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!

Symbol
Gain %
Start PE
Today's PE
RAI503.3012.016.36
JNJ81.7723.615.04
KMB34.1315.215.49
ABT74.5619.118.72
CLX104.2218.737.54
PEP97.72NA18.93
MCD96.6623.517.16
PG125.6018.217.62
T-33.2620.59.20
MO3.325.814.24
SO57.7711.817.82
CVX91.5919.09.87
WMT11.5243.613.35
VZ-42.1920.429.54
CTL8.7119.714.18

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.

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46 thoughts on “15 Stocks To Survive Another Lost Decade

  1. No arguing that dividends are very important. I liked Jeremy Siegel’s book “Stocks for the Long Run” is a great read and stresses the importance of dividends as part of the overall return on stock investing. Even though Buffett doesn’t pay dividends, he sure likes to get them.

    • Good point on Berkshire! Buffett’s contention is that he can better manage the money than his shareholders!!

  2. Really nice list. I always hate the investing marketers who say well if you buy now you can recover your money and or previous returns are…blah blah blah. This list proves with simple investing techniques you can make compounded returns very nicely even on the worst time frame for buying a stock.

  3. Good list though I have to admit I prefer ETFs and would use DVY. Worth keeping in mind is that your list was for the “lost decade”. I have no doubt that if we have another “lost decade” your list will do spectacularly. But how will it do if we experience an extremely strong market with international markets leading the way? I wonder how it did for the 10 years ending at where your study started?
    Interesting analysis.

    • The reason I started doing this was introspection. Was there a way to have made money during the lost decade and what should I do to not repeat the same mistakes if there was one more impending.

      One easy answer was gold! But I’m not much of a precious metals guy!

  4. Great list! I am slowly moving my portfolio toward dividend stocks. I think it’ll be great for income and hopefully they’ll also see some gain over the next 10 years.

  5. Untemplater says:

    That’s awesome analysis! I was never gutsy or smart enough timing wise to mess with tech or finacial stocks myself. It is definitely refreshing to look at long term upward trends. I wish I made those kind of returns! I’m definitely not patient enough to ride out the ugly storms.

    • True! When I bought these stocks I was least bothered if these went up or down – because long term, they have a better chance of success

  6. What really interested me about your ariticle, besides the fact that I currently own 6 of the stocks on your list, is you seem to believe we are going to have another lost decade.
    I believe we must be prepared for another decade of huge volatility and a sideways or down market because these kinds of bear market usually last 17-20 years. In addition to the dot com bubble, we are still experiencing the unwinding of a housing bubble, and may be at the beginning of downsizing a bubble in government spending.
    Thanks for the great article!
    (http://AAAMPblog.com )

    • I’m sure I’ll see turbulence! What I wanted to figure out was, if we were to have another bad stretch, how best I should invest.

      Because, on the face of it, it looked like, no matter where you invested in, you lost money! But this exercise proves that, that obviously not true!

      I went with the crowd during the last one and that didn’t turn out very well!

      • Yes…following the crowd usually get us in trouble because none of us are smart enough to get out at the top. I use a tactical asset allocation strategy for the Arbor Asset Allocation Model Portfolio (AAAMP) which only lost 2% in 2008. I underperform the market when it’s rising but the net result is long term outperformance. It is more important to not lose money (because of compounding) than it is to capture all the gains in rising markets. Here is an explanation of my risk adverse strategy:
        http://ArborInvestmentPlanner.com/tactical-asset-allocation-strategy.php

  7. I’ve recently become a huge fan of dividend stable boring stocks… but do alot some of my portfolio to riskier type “gambles”. I don’t know why I do this, it’s silly!

    That’s a great list.

  8. Great list! People have lost a lot of money during the downturn and investing money towards dividend paying companies with stable revenue streams is a nice strategy.

    • Ken,
      The key is not dividend paying companies, the key is exclusion of Tech and Finance companies. Had I included financial companies (they used to pay dividends unlike tech companies), the results would be terrible.

  9. Man I already own a bunch on that list! Good choices and smart screen!

  10. Steady, boring and predictable are all good things. They need to balance out the hairier parts of the portfolio.

  11. I’d argue just about every company today is a technology company, especially telephone and drug companies. Phone companies, in particular, have dim long-term growth prospects. In fact, they will have problems just maintaining where they are at now. Moore’s law for microchips has a corollary in the world of networks.

    • The reason I exclude tech is not because tech companies don’t have prospects, but because it is hard to predict which will weather the storm considering how quickly technology changes.

      I exclude financial companies, because if these companies engage in ‘creative accounting’ it is hard to tell. We have to rely totally on auditors and we know how they did! Moody’s anyone?

      Plus I think there is poor oversight. Goldman Sachs played a key role in the crisis, yet they were fined $500 million, which is chump change! I’m sure their bean counters must’ve figured by now that by skirting the law, the cost if caught would much less than making money through shady deals.

      But it is easy to spot deficiencies if a company has a tangible product – less chances of creative accounting.

      Those are the two reasons I skip these sectors.

      Telecom giants hardly have competition thanks to restrictive deals – that’ll keep them humming for a while. (edited comment for clarity)

  12. Great list! We have been building a dividend portfolio outside of our retirement investments. We already have a few from the list JNJ, PG… I will look up your other ones too.

  13. Im with the earlier comment about stable and boring stocks that do well over the long. It seems nowdays a lot of fundamentals don’t matter because major news events and speculation moves the whole market regardless of what the company is doing.

  14. The dividend really makes a difference with stocks. I really like your criteria’s there. This article was really helpful, thank you so much for sharing it. Another food for thought!

  15. The key thing to remember is that any stock purchase should be considered a long term investment. For short term investments you play the volatile money markets, for long term safe investments you go for government bonds, then for the safest long term results you get blue chip stocks. But it seems that tech stock are still doing well.

  16. What I found interesting in your example is many of the p/e ratios went down, but the increases were greater. It shows you need a portfolio of stocks or a fund of stocks to spread the risk.

    • I’m glad somebody noticed! There was a reason for sneaking in the PE data in the table!

      Great point KC!

  17. Nice list, I hav VZ and MCD. I know people that have ABT and PEP, I don’t know why I haven’t pulled the trigger on those yet…

  18. I think a piece on international/emerging markets dividend stocks would be interesting for readers. International stocks have irregular dividends but offer greater growth potential and, most of the time, better dividend policies, namely they don’t force themselves to pay a dividend if they’re not profitable. I’m thinking TEF, CPL, SSL….

  19. I’m just starting to build a dividend investing portfolio. Thanks for sharing this list and the outcome. Boring and predictable are just fine for me. ;)

    • Stick with boring, predictable and profitable, you’ll come out ahead of the rest in the long run!

      Glad you like it LH!

  20. Interesting analysis, I like it! Not sure how I missed it originally, but nice to read it now.

    Goes to show that over the long run, companies with good fundamentals (and cash rich?) can potentially be great investments. The craziness and volatility that’s seemingly become the norm just might be a distraction for the real long-term opportunities.

  21. I have included this article in the “Best of Personal Finance Investing Blog Posts” at http://blog.ArborInvestmentPlanner.com/2011/06/best-of-personal-finance-investing-blog-posts-2

  22. Devidens is surely a important signal to know a good stock (and company) that great as dependence stock in difficult time such as economy crisis.

  23. Awesome article MC! What lost decade? 65%? Amazing. I think human ego and pride get the best of us. No one likes boring. Everyone wants the homerun and to brag about it at the water cooler. 10 baggers anyone? Now that those days are behind me, sign me up for the boring portfolio!

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