Five surprising stocks in a 20-year bear market

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Looking at individual stocks gets wild …

It might surprise you that the following stocks have all yet to surpass their March-2000 dot-com era highs (at the time of writing. Admittedly 2 are getting close):

Intel
Cisco
Pfizer
AT&T
General Electric

It gets even weirder when you focus in on Cisco – despite being in a 20 year bear market the stock has actually beaten Apple over 30 years (I guess dot-com bubble was a hell of a run, huh):

It just goes to show how wild things get when you start looking at individual stocks. Are these companies all on their way to being dead and buried or was it just a matter of patience being needed? Well, both or neither probably. It’s often hard to say.

As Ben Calson has pointed out, many of today’s most successful stocks, like Amazon had their prices brutally cut by 90+% post 2000, took more than a decade to recover and suffered multiple further 50%+falls on the way to becoming one of the best investments of a generation.

At the same time the JP Morgan data shows that a staggering 40% of stocks lose 70+% of their value and then never recover!

So what?

There are some clear takeaways for investors:

Active management is hard, concentrated portfolios are very, very hard.

It is a very fine line between patience and stubborness and impossible to know in advance. died-in-the-wool value types will say it’s only a loss when you sell but this isn’t true (it’s borderline dangerous advice in my book). It is not the case at all that all stocks recover if you just have patience, the stats tell you they don’t although some do. No-one rings a bell or sends you a message to let you know which category you’re in though. You need to keep updating your thesis.

Don’t get seduced by single-stock stories. All that money you’d have made if you just bought at the Amazon IPO and never sold? Yeah that’s a fantasy just about as likely as you having played in the FA cup final or opened the batting for England at Lords. A small number of people a generation will actually do this but it’s never really a realistic yardstick for you. It’s far more likely that you’d either bailed out of it at a significant loss or instead ended up in a Cisco or a Pfizer.

I get it, investing in individual stocks is a lot of fun, and interesting too (I do even do it myself), but do yourself a favour and make sure the core of your long-term savings is in a low-cost passive fund which just gives you the easiest “out” to not have to worry about these things really affecting your financial situation.

The dot-come era was a truly wild time. Be careful with your comparisons and do a little work. I wasn’t working at the time, and it’s worth remembering that only a small minority of those working in financial markets now were. It sure casts a long shadow in good and bad ways (perhaps more so in hindsight, surprisingly, even than the financial crisis which occured a decade after), but is frequently mis-compared to other periods. In many ways it defies all comparisons.

From my reading/study of the period and the aftermath to do it justice you need to recognise at least 5 different groups of stocks:

The truly bubble stocks that plunged and never recovered. You know the names, pets.com etc
The Amazons: tech stocks that soared, got crushed, then went on to become some of the best investments of all time (eventually)
The Ciscos & Intels: tech stocks that soared, got crushed then went on to be among the largest and most important companies of the next two decades, while remaining flat or down in stock price terms.
The Pfizers: real economy stocks that got caught up in the craziness and spent the next two decades doing what they do, churning out billions in sales and revenue while being underwater in their stock price.
The GE’s: real economy stocks on their way out that went into terminal decline.

Most references to the dot-come period major on (1), perhaps a bit of (2) but categories 3 and 4 can tend to get a little forgotten.