CONFERENCE CALLS
None
INVESTMENT OPINION
Buy & Hold Apocalypse
Episode Three: Decade by Decade
Our data for today was provided by Stocks, Bonds, Bills & Inflation, an Ibbotson Associates piece. It looks at the returns by decade of the S&P 500, small company stocks, bonds, T-bills and inflation. Obviously the data from the '30s and the '70s are going to provide the two worst sets of returns. The 1930s was a period of disinflation brought on by a worldwide depression and strict adherence to the gold standard. A curious feature of the gold standard was that it caused periodic bouts of systemic disinflation as the value of all sorts of goods and services decreased. The 1970s was a period of rapidly accelerating inflation initiated by a surge in the prices of various commodities, including but not limited to oil.
In the 1930s, the S&P 500 returned 0.0% while small company stocks notched a 1.4% gain. In the same period, long-term bonds rose 4.9%, T-bills were up 0.6% and inflation was -0.2%, signaling disinflation. The returns of stocks for the 1930s were positive when adjusted for inflation and the returns of small company stocks were superior to those possible in T-bills, our stand-in for money markets. Without a doubt, for that decade long-term bonds were the champ. However, for the next three decades long-term bonds dramatically underperformed all stocks and their total return even after the 1940s were done was about par with the S&P 500 and below small stocks.
In the 1970s, the S&P 500 returned 5.9% while small company stocks produced 11.5% gains. Accelerating inflation didn't help blue chips, but actually did not put as much of a damper on small company stock returns as many in the press would lead you to believe. For the same period, bonds produced 5.5% gains, T-bills yielded 6.3% and inflation was 7.4%. During the 1970s, the inflation-adjusted returns of the S&P 500, bonds and T-bills were all negative -- and about the same. The inflation-adjusted returns of small stocks were positive. These two sets of data represent the absolute worst returns in a decade for stocks and despite all of the yammering about massive corrections, they really do not seem all that bad. If you go a step further and say that the worst returns for stocks since 1920 were in decades characterized by disinflation or rapidly accelerating inflation, things suddenly look even rosier. **This Fool owes a special thanks to Legg Mason Fund Advisors' Bill Miller for information in this article and other articles in this series.**
Tune into the Evening News's "Fool On The Hill" column this evening for an even deeper look at historical market returns when we start to look at the "rolling returns" of stocks over various time periods since 1926.
LERNOUT HAUSPIE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LHSPF)") else Response.Write("(NASDAQ: LHSPF)") end if %> continues to surge on the news that MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSFT)") else Response.Write("(NASDAQ: MSFT)") end if %> will use their text-to-speech technology in "future" applications. Up $1 to $20, the reaction has been pretty extreme over the past two days.
Alex. Brown & Sons upgraded shares of WILLIAMS SONOMA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WSGC)") else Response.Write("(NASDAQ: WSGC)") end if %> to "buy" from "hold" this morning, causing shares of the beleaguered retailer to rise $1 7/8 to $21 3/8 this morning.
CASINO DATA SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSDS)") else Response.Write("(NASDAQ: CSDS)") end if %> delivered an earnings surprise this morning, reporting results 15% higher than consensus expectations. Shares of the gaming information management concern popped up $1 to $15 1/8.
News that online services concern AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %> was making its move to the Big Board was enough to boost shares $1 1/2 to $32. The company believes that listing on the New York Stock Exchange will reduce volatility... a dubious premise if you ask BAY NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAY)") else Response.Write("(NYSE: BAY)") end if %>.
MEN'S WEARHOUSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SUIT)") else Response.Write("(NASDAQ: SUIT)") end if %> dressed up $1 7/8 to $19 1/2 this morning when Robbie Stephens hiked its rating to "buy" from "long-term attractive." What's the difference? Got us... they left earnings estimates the same at $1.05 EPS for '96 and $1.30 EPS for '97.
Morgan Stanley initiated coverage of TELECOMUNICACOES BRASILEIRAS SA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBR)") else Response.Write("(NYSE: TBR)") end if %> with a "strong buy," talking up the firm's growth prospects and setting a $100 price target. Shares were up $3 7/8 to $76 1/4.
ETHAN ALLEN INTERIORS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ETH)") else Response.Write("(NYSE: ETH)") end if %> rose $3 3/8 to $25 1/4 this morning after it reported earnings seven cents above estimates and more than double last year's anemic results.
Goldman Sachs continued to move the market with its Priority List, knocking FILA HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLH)") else Response.Write("(NYSE: FLH)") end if %> up $6 3/8 to $87 today after it placed the footwear manufacturer on the list.
SILICON GRAPHICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGI)") else Response.Write("(NYSE: SGI)") end if %> reported a loss of $0.30 EPS including the acquisition of Cray Research, apparently below analysts' expectations. A number of brokerages were cutting their ratings of the graphics concern today, as shares tumbled $3 1/2 to $22 1/2.
Apparently, something in a press release from SCICLONE PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SCLN)") else Response.Write("(NASDAQ: SCLN)") end if %> did not jibe with expectations. The stock slumped $3 1/2 to $8 5/8 this morning after the company clarified results and strategies for its Zadaxin hepatitis treatment.
NAPRO BIOTHERAPEUTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NPRO)") else Response.Write("(NASDAQ: NPRO)") end if %> dropped $3/4 to $9 1/4 this morning when it decreased the number of shares it was issuing in a public offering today. The company only sold 1.6 million instead of the 2.0 million originally planned.
CHIRON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CHIR)") else Response.Write("(NASDAQ: CHIR)") end if %> dropped $9 1/4 to $78 3/4 this morning after Genesis Merchant and First Boston both cut their ratings on the shares following the posting of the company's second quarter earnings yesterday.
None