Do Long Term Investors Always Win ?

It is apt that I am writing about this today which could turn out to be the worst day for markets in many years, from before and from now.

Try this exercise.

Type “Invest in shares and lost money” into Google Search. The results are quite interesting, just scroll past the first 1-3 pages, and wow a spectacular list of sob stories clustered around specific crash years 0f 1987, 1994, 1997, 2001 and so on, including a biggest 1 day fall in Bangladesh markets back in 2011 that resulted in an investor demonstration against riot police.

I have a good friend of many years whose mother had managed to educate in Australia for her tertiary degree on a single investment strategy – HSBC shares, which she religiously believed to be the creme de la creme of the blue chips for Hong Kong in those days. Each month, her mother would dutifully put a sum into the shares and left them there till my friend was ready to start school.

Incidentally, I met another of such mothers recently who was bemoaning to me about her portfolio losses which I mentally assumed to be not so much actual losses per say, but mark to market losses from their peak earlier this year.

It got me wondering if such a strategy is sound after reading about some investors who had held on through the dot-com bubble burst and still lost money despite the recent rally that drove stocks to record highs.

Surely it would not have worked if she had chosen Citibank shares and if her daughter was getting ready to go to school next month because the 10 year annualised total returns (including dividend reinvestment) of Citibank is errr, -16.88%. Aha, but that assumes you bought Citibank 10 years ago. Thus, I went checked up assuming she had invested in Citibank dutifully each month since 2005 and got a much better result, she would have just lost -67% of her capital on average over 10 years (which is better than -168% had she bought 10 years ago and sat on it).

Still, it does not make the strategy sound at all for who would want a loss after 10 loyal years ?

I was pretty sold on this chart last year which I dutifully plotted after a friend expounded on his value investing strategy and dismissed the hype on the EM boom.

“so much for your brokers and their hype about the EM boom story, if you had invested in Mcdonalds or IBM 20 years ago, your returns would have quite outstripped the returns on a MSCI Asia Ex Japan Fund or unit trust.

IBM +1700%
MCD +675%
MSCI Asia Ex Japan +47%
MSCI Asia Ex Japan Small Cap +102% ”


This is assuming you had plowed that entire nest egg into IBM back in 1994, sat through the dot-com burst in 2001 followed by half a decade of rangy prices, the Global Financial Crisis and waited till 2011 before IBM’s stock price rose above its previous high back in 1999.

It is true for studies have shown that “Someone who invested in the market in 1948 quintupled his money in real terms over the following 10 years, but someone who did so in 1964 ended up a decade later about 30% poorer. Those are the 10-year returns, in other words, after smoothing out annual “volatility.”

Even 20-year returns can show gigantic variance. From 1948 to 1968, the S&P 500, including reinvested dividends, multiplied your money 10-fold in real terms. From 1961 to 1981, your total return was 22%. Not per year, but total. Over 20 years.

Perhaps I was the cat who was killed by curiosity in my past life but I would not let it go and thus I dug up the top 500 market cap stocks just to check on their performances in the last 5 and 10 years.

Of course I sidetracked when I realised that 40% of the companies which were in the top 500 back in 2005 have fallen off the list, Countrywide, Bear Sterns, Fannie Mae, Freddie Mac, Merrill Lynch and Lehman Brothers most prominent, leaving us with 307 and quite a bunch of Chinese names.

Singapore, be proud. From a lonesome Singtel in the Global top 500 in 2005, we now have Singtel (number 224), OCBC (number 448) and DBS (number 336) in 2015 !

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