Yes, it's true. Using the benefit of hindsight we can go back and see some of the unbelievable returns that have come out of this recession. More importantly, we can take away some important lessons from them.
When the market hit its low point in March 2009 during the financial crisis, there were two stocks in the S&P Super Composite Index (which consists of 1,500 stocks) that turned a single $10,000 investment into $1 million today. In percentage terms, that equates to a gain of 9,900%.
The chosen two were bed maker Select Comfort (SCSS) and auto parts distributor Dana Holding (DAN). In March of 2009, Select Comfort shares were trading for less than $1. They fetch $33 today. Dana shares were also trading below $1 and now fetch $20 per share. Both of these names turned $10,000 into well over $1 million since the recession lows.
To add salt to the wound, Dana is now paying a 5-cent annual dividend so anyone who bought under a buck is getting a yield of over 5% today. There are two valuable lessons for investors from this piece of market history.
The first and most important lesson is that rarely will anyone realize the gains I note above. To have done so, one would have had to have bought shares at the absolute bottom and still hold them today. To put this in statistical parlance, the odds of this type of return happening in a security is 0.01% in the S&P Composite. Even then, an investor has to be able to pick the winning stock.
Lesson number two, however, is tried and true: the best gains are almost always going to occur when an asset is bought during point of maximum pessimism. While there may be a 0.01% chance that a single stock will return a 100-fold return, the market has returned over 200% in the last six years. By simply investing in your backyard during point of maximum pessimism, the last six years have been bountiful.
Apple (AAPL), perhaps the most wildly-followed stock, is up over 700% in the last six years. Visa (V) and MasterCard (MC) are both up astronomically during this time. One didn't need to find a needle in a haystack investment like Dana or Select Comfort to do incredibly well.
Doing well in investing doesn't require doing a lot of things right. The key is to understand the nature of markets. When times are at their worst, the market serves its best opportunities.
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