A Dismal Investment Decade Plus Two

By Meryl Baer - August 3, 2012 | Tickers: AAPL, DMND, GMCR, SBUX | 0 Comments

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It is getting redundant and boring to continually describe the stock market as volatile. But that is what it is and has been for months, if not years.

Stock market volatility is probably the key word of the twenty-first century investment world to date. Additional words describing the markets over the past decade plus two years are down dog (I know, that is also a yoga term), flat, horizontal, depressed, low, weak, scary, uncertain.

A perfect example of the highs and lows of the market and one stock's volatility is Apple (NASDAQ: AAPL). The stock closed on December 31, 1999 at $25.70 (split adjusted price). Two years later the stock had plunged to close 2002 at $7.16. Five years later (2007) AAPL closed at $198.08. It dropped to $85.35 one year later. AAPL reached a 2012 year-to-date low on January 23, 2012 of $427.41 and closed on July 31, 2012 at $620.76. That is a lot of numbers, but zigzagging from the 20s to single digits and later surging to high triple digits creates havoc with investors. When to buy? When to sell?

The good news is the market has clawed its way back from the depths experienced in 2008 and 2009.

Starbucks (NASDAQ: SBUX) is one example of a comeback stock. SBUX closed the twentieth century (12/31/1999) at a split-adjusted $6.06, rising to the $30s and $40s during 2000 and 2001, then went into freefall. SBUX closed 2002 at $10.19 and five years later, December 31, 2007, closed at $20.47, only to plummet to $9.46 a year later. By December 31, 2009 the stock was $23.06, touched a 2012 high of $55.89 on March 30th and closed July 31, 2012 at $45.28. That is enough highs and lows to give any investor a headache.

The bad news is the markets have not advanced much – and in some cases not at all – since 2000.

Here is a chart showing where three market indices closed on July 31, 2000, and where they closed exactly twelve years later:

The Dow Jones Industrial Average (DJIA) advanced about 25% in twelve years; 2% a year indicate miserable returns. The numbers do not reflect the volatility experienced (there is that word again). Markets plunged following the financial crises of 2008, struggling back over the past couple of years.

But market performance during the 21^st century gives all investors something to think about.

Is it worth investing in stocks?

Unfortunately playing it safe over the past few years may have preserved dollars, but non-existent interest rates made it impossible to make money in safe, secure securities such as certificates of deposit.

Individuals requiring income have been able to eek out some bucks from interest-bearing bonds and stocks offering dividends. Dividend-producing stocks also improve market returns.

There are market experts declaring the end of the stock investment era; among them market guru Bill Gross. I do not agree.

Throughout the twentieth century long periods of flat and/or declining markets produced similar proclamations and widespread despair. But the market managed to rally and move forward eventually.

I believe the same will occur this time.

There are proactive measures investors can take minimizing losses should the market decline again while preparing for and ultimately taking advantage of market surges.

Here are three suggestions. Future posts will propose additional actions.

Monitor stock investments. It is still a good idea to buy and hold, but purchasing a stock and forgetting about it is no longer an effective investment plan. Review stocks at least yearly, and preferably every six months. Small cap stocks should be reevaluated minimally twice a year and ideally quarterly.

Green Mountain Coffee Roasters (NASDAQ: GMCR) is an example of a company requiring hands-on investor oversight. The small coffee company, based in Vermont, was a penny stock for years, closing December 31, 1999 at $.29. The stock closed 2005 at $3.01. The company bought Keurig in 2006 and introduced single-serve coffee to the U.S. market. Sales and the stock took off. GMCR reached $100 and kept going. Then trouble began plaguing the company, and its stock. A well-known and well-regarded hedge fund manager, David Einhorn, panned the stock. Rumors of accounting problems made the rounds. The stock went into freefall. It closed on July 31, 2012 at $18.26.

Keep up-to-date on corporate developments for your holdings. Sign up for market alerts. The Motley Fool is one of many financial websites offering free stock alerts.

Diamond Foods Inc. (NASDAQ: DMND), a nut and snack food manufacturer, went public July 21, 2005, closing its first trading day at $21.05. A year later, July 31, 2006, the stock had fallen to $14.86. DMND experienced spectacular stock success when the market began turning around in 2009. The stock closed at $36.66 February 8, 2012, and plunged the next day, closing at $23.13. Rumors of accounting irregularities caused the drastic fall, illustrating the importance of market alerts. Investors need to be able to react quickly when market developments occur.

Build a stash of cash for future stock purchases. When market uneasiness, uncertainty and doubt finally turn around and investors feel confident about the future, you want to be able to take advantage of the situation and buy high-quality stocks.

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