As Y2k09 came to an end, it was quite an unpleasant shock for boosters of long-term investing like us to realize that for most individual investors – especially those who faithfully followed a “buy and hold” approach – the entire decade of the 2000s came to naught…and to NOUGHT - to a big fat zero .
As a January 2 New York Time s article pointed out, “If you invested $100,000 in the Vanguard index fund that tracks the Standard & Poor’s 500” [and invested all the income] “you would have ended up with $89,072 by mid-December of 2009.” Worse yet, adjusted for inflation - where ordinarily we think of stocks as a “hedge” - you’re left with only $69,114, the article pointed out.
And “The Naughtys”
…Worse yet, as we look back, the 2000s can also be quite appropriately thought of as the decade of “The Naughtys” – where clearly, bad legislators (who somehow have managed to escape the consequences of the major part they played here), bad regulators and bad corporate managers led us to a major market meltdown, that served to erase the gains we might otherwise have been able to book…and created a credit-crisis that’s still far from over, we think.
Adding insult to injury where ordinary investors are concerned, corporations have slashed their dividends at record-breaking rates. In 2009, U.S. companies reduced dividends by $58 billion a year. What a kick in the breadbasket for long-term investors THIS is! Adding even more insult to the injury we think, U.S. companies are sitting on more cash than they’ve held in 40 years: According to a November 2nd WSJ article, the 500 largest non-financial companies were sitting on $994 billion in cash and short-term investments, or 9.8% of their assets in the third quarter, up from $846 billion or 7.9% in 2008…and on-track to go higher yet by yearend. And adding even MORE insult to injury, this is after many of these same companies burned up TRILLIONS of shareowner money buying back stock at highly inflated pre-bust prices…using money that we say should have been mostly forked over directly to us, the “owners”…while other companies have burned up trillions more, making bad acquisitions.
The good news is that with any luck, this huge hoard of cash will help to set the stage for a big rebound in payouts to long-term share owners - and maybe for the return of confidence where “average investors” are concerned. But frankly, the jury is still out here. What a grand opportunity however, for companies that keep their priorities straight, to jump out ahead of the pack, and watch their stock prices soar in response.