The Kansas City Royals have made it to the World Series for the first time in 29 years – and brought plenty of lessons about the rewards for patient investors.
The good people of Kansas City have waited a long time to see the Royals back in the World Series (or even in the playoffs for that matter). It’s been 29 years, to be exact.
As a lifelong Red Sox fan, I have a lot of empathy given that until 2004 we’d been waiting 86 years for a championship. We’ll see if the Royals, winners of eight straight playoff games without a loss this year, can keep it going and pull off the ultimate reward for their fans’ perseverance.
Given the volatility we’ve been seeing in the market lately, I thought we could use some Royal perspective to remind us of the benefits of staying the course through thick and thin. So let’s take a walk back in time, shall we?
As it turns out, 1985 was a banner year for stocks. The S&P 500 returned 26% that year. But it did have a pullback of 8% at one point. Sound familiar? (This year, the S&P has fallen 7.3% since Sept. 19.)
In fact, since 1985, the S&P 500 has had pullbacks of over 8% or greater 23 times. In many years, there were multiple pullbacks that size. Corrections (defined by a drop of at least 10%) are commonplace. Despite this, the market has a positive year 76% of the time. Over three-year periods, it’s positive 95% of the time. Over five-year periods, it’s positive 98% of the time.
Of course, the shadow of 2008, when stocks ended down 49%, still looms large for us, even if in 2009 they rebounded 23%.
Since 1985, there have only been six years that the S&P 500 ended in negative territory. The numbers since the Royals last played in the World Series look pretty good:
S&P 500 on Oct. 21, 1985: 186.96
S&P 500 at Friday’s close: 1862.76
That’s an 896% total return, or an annual rate of return of 8.3%. That would have turned $10,000 invested in 1985 into about $101,000 today.
Or, what if you chose a stalwart dividend-paying stock like Coca-Cola (NYSE: KO)? On Oct. 21, 1985, when Coke’s slogan was “America’s Real Choice” (which seems as obscure as 1906’s “The Great National Temperance Beverage”), the soda giant’s split-adjusted price would have been $0.79. On Friday, it closed at $42.56. That’s a 5,287% total return, or 14.7% annualized. So, $10,000 would have turned into about $534,000.
Not too shabby. It goes to show that if you can pick the right stocks, you can definitely achieve some outsized returns. I know that’s exactly what Steve Mauzy is trying to do in our High Yield Wealth newsletter as he scours the universe for the best dividend payers out there.
But if you just got the market’s average of 8.3% since 1985, you’d have to feel pretty good. During the last 29 years without a Royals World Series appearance we’ve endured two wars in the Persian Gulf, the tech bubble, 9/11, the collapse of the U.S. housing market – a whole bunch of stuff that’s at least as bad as ISIS, Eastern Europe, and Ebola today.
My point: Perseverance pays – for Royals fans and for investors.
So, if you’ve been suffering from indigestion with all the volatility we’ve been seeing lately, take heart. Remember, as I said last week, Your Portfolio Is Not Infected With Ebola.
Or better yet, remember what the great value investor Ben Graham (Warren Buffett’s mentor) said: “Bear markets are when stocks return to their rightful owners.”
He means that corrections present buying opportunities for savvy investors.
I’m not hoping for a bear market. I’m hoping the Royals win the Series and launch us on another great 29 years in the stock market.
I know we’ll have our bad years and take our lumps. But like Royals fans, I know we’ll endure and persevere, too. That makes the payoff that much sweeter.
Bob Bobala is the managing editor of Wyatt Investment Research.
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