Of Pictures and Speed Bumps
They say a picture paints a thousand words. My sister recently re- posted the above picture of our family last April for “Sibling Day “on my Facebook page. I believe the picture was taken circa 1966. Back then, when my family would go out to dinner it was always a big event with us dressing up for the special occasion.
Reflecting on all that has gone on between then and now, it made me think about the conversations we often have with clients around the volatility of the stock market and whether now might not be the best time to invest. So, my team and I did some number crunching and dusted off our history of the DOW book.
In 1966 the DOW was at about 1000. Today as I write this March 16th, 2016 it sits at 17272. The Dow Jones Industrial average annualized return for the past 50 years is about 6%.
Johnson and Johnson’s 50 year annualized return on the other hand is approximately 12%. If you would have invested 1K in Johnson & Johnson in 1966, it now would be worth not inclusive of dividend reinvestment approximately $285,000. Given you do your homework, diversify your portfolio and have the emotional fortitude to adhere to a proven disciplined process for buying and selling.
Given the attractive return for both the DOW and J&J over the past 50 years from a “big picture” wide angle view, it would seem like an easy decision for most of us to invest in the equity market, and what a wasted opportunity it would have been if we hadn’t. But it isn’t always that easy. When we zoom in and take a closer look perhaps on a weekly or monthly basis, there would have been many speed bumps along the way that may have kept a potential investor out of the market. This is where emotions come into play.
It is said “Wall Street climbs a wall of worry.”
From 1966 until today, we have experienced many painful events that have biased our feelings on whether it’s the right time to invest or not. You begin to expect another painful event that will bring down the market. We’ve experienced the Vietnam War, Watergate, the Arab oil embargo, the 87’ Crash, the tech bubble, and most recently in this decade; 9/11, the financial meltdown of 2008-2009, the European debacle, fiscal cliff, the devaluation of the dollar, and the list will only grow longer. By putting our bias’s, and the pain of recent events aside, and if we zoom out and focus on the big picture it makes it a much easier decision as to when is the right time to invest. The picture once again becomes clear.
Opinions expressed are not necessarily those of Raymond James & Associates. Information contained was received from sources believed to be reliable, but accuracy is not guaranteed. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. Past performance may not be indicative of future results. It is not possible to invest directly in an index. Raymond James & Associates, Inc., member New York Stock Exchange, makes a market in Johnson & Johnson. Diversification and strategic asset allocation do not ensure a profit or protect against a loss. Investments are subject to market risk, including possible loss of principal. The process of rebalancing may carry tax consequences.
