With 2008 finally over, many investors have equity portfolios that have shriveled by 30% to 70%. Simple arithmetic will tell you that if you're down 50% in 2008, you need a 100% return to get back to even. While this is possible, it will be a remote possibility for many to earn a triple-digit return in 2009, considering that many consider it to be a healing year at best.
Whether we like it or not, investing is most beneficial and pays off best when it is done for a period of many years. As such, investors holding securities are better off focusing on holding-period returns, which are what really matter. The stock market swings wildly in the short run, but over time, stock prices have always caught up with the underlying fundamentals of the business. Skeptics will correctly argue that a dollar invested in the market over the past decade would be worth slightly less today. But I'm talking about investing in individual securities, not in the broad market.
One thousand dollars invested in steel producer Nucor (NUE - commentary - Cramer's Take) in 1998 would be worth about $20,000 at the end of 2008. The same $1,000 invested in UnitedHealth Group (UNH - commentary - Cramer's Take) in 1998 would be worth over $15,000 today once you factor in three 2-for-1 stock splits that occurred in 2000, 2003 and 2005.
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At the time of publication, Gad had no positions in stocks mentioned, although positions may change at any time.
Sham Gad is the managing partner of the Gad Partners Fund and the Gad Partners Offshore fund, value-centric investment partnerships based in Athens, Georgia. Gad has written extensively for the Motley Fool and was a securities analyst for UAS Asset Management, a small, value-focused fund in New York City in 2007. Previously, Gad managed assets for the Gad Investment Group. For additional information, please visit www.gadcapital.com.
Gad also runs a value-investing blog inspired by the teachings of Benjamin Graham and Warren Buffett. Additionally, he is currently working on a value investing book to be published by John Wiley & Sons in the fall of 2009. Gad earned his BBA and MBA at the University of Georgia. Send Sham Gad an email. You can reach Gad at sham@gadcapital.com.
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