An experiment to prove the value of patience

Mattie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The more we learn about the economy the more we realize that nothing is for certain, and that predictions are usually worthless. In fact, with a hundred years of market data at our fingertips, there is only one pattern that consistently emerges.

The stock market tends to go up.

In what will be an ongoing thought experiment on the value of ignoring short-term news in favor of long-term, dedicated investing, I am going to go back in time to March of 2002. There, I will take $50,000 and spend a fifth of it on five of market’s top 500 stocks. I will make these picks completely at random, and chart what that money would be worth today.

 Using random.org, I generated 5 numbers between 1 and 500. I then cross-referenced that with each company’s market value found at http://www.businessweek.com/pdfs/2002/02bw50-alphaindex.pdf I purchased the stock as close to January 7th, 2002 as possible.

The numbers (and correlating stock) are:

343: Radioshack  – 29.6 -> 337 shares

425: Ashland  – 38.14- > 262 shares

9: Johnson and Johnson 57.87 -> 172.8 shares

375: Rockwell Collins  19.00 -> 526 shares

481: Crane 23.00 -> 434 shares

 

Now let’s hop back to today and see how we did.

343: Radioshack (NYSE: RSH) – 2.08 = $700.96

425: Ashland (NYSE: ASH) – 83.95 = $21,994.9

9: Johnson and Johnson (NYSE: JNJ) - 71.40 = $12,766.32

375: Rockwell Collins (NYSE: COL) - 59.21 = 31,144.46

481: Crane (NYSE: CR) -  46.94 = 20,371.96

All totaled up, our shares are now worth $86,977.24, a 74% increase on our initial investment!

All five of these stocks have dividend history as well (Radioshack does not currently). With that money added, it’s very possible that by picking five stocks completely at random in 2002, you could have doubled your money. I plan to do more of these to further preach the importance of patience as the only skill we as investors hold over the market.


Fool blogger Mattie Culkin does not own shares in any of the companies mentioned in this entry.

blog comments powered by Disqus

Compare Brokers

Fool Disclosure