In the late 60s and early 70s, 50 large stocks came to be known as the “nifty fifty.” Many investors proffered that these stocks had such great promise, that all an investor had to do was buy ‘em and hold ‘em. The list included such great names as Polaroid, Burroughs, Kodak, Texas Instruments, Dow Chemical, Merck and Philip Morris. Some analysts warned that these stocks were precarious investments because they sported a “dangerously high” price earnings multiple of 41.9 and “terribly low” dividend yield of 1.1%. And these analysts seemed to be correct in the market of 1973/1974 when these stocks and the market, came crashing down, exacerbated by soaring inflation and the oil crises. But what about the investor who bought these stocks and ignored the short term fall in 1973/1974?
That investor would have averaged a return of 12.2% annually from the market peak in 1972 through August 1998. During that same period, the S&P 500 averaged 12.7%. Our investor, without owning any sexy stocks such as Microsoft or Intel or Cisco systems, would have almost matched the S&P 500 return and not needed to make any decisions.
What’s the lesson? Just because price earnings ratios appear high or dividend yields low, does not mean that stocks cannot continue profitable runs over the long run. By the way, what was the best nifty fifty stock? Philip Morris—with a return on 18.8% annually!
If you would like to own stocks that have a profile for long term continued growth, we can send you a report to help you make sound decisions for your portfolio right now.