A Lost Decade - But Not For Everyone

One of the best posts I read this week was from Fortune’s Andy Serwer. In it, he noted:

At the end of 1999 the Dow was around 11,400. Today the Dow is at
8,400, which means the index has fallen some 26%, a decline of almost
3% per year. With just one year left in this decade – even if 2009 is a
humdinger – it is increasingly likely that first 10 years of this
century will be one big washout for investors. A lost decade.

I’ve been thinking about that since I read it midweek. A lost decade in which if you owned the Dow, you’d have lost money on stocks.

But there’s a problem with indexes and that is the average doesn’t really tell you that much. So I want to look at the Dow stocks and figure out which ones were big winners this decade and which ones were big losers.

Here’s a list of the 30 current Dow stocks. Let’s take a look at six of them;

United Technologies


3M is up a bit in the "lost decade" about $10 or a 20% gain in almost 9 years. Nothing to get too excited about but not a loser.


As most everyone knows, Citigroup is fighting for its life right now and is down at least 90% since the start of the "lost decade". But for most of this decade, it was flat. The drop has all come in the past year.


GM’s chart looks quite a bit like Citigroups and it should. It is also fighting for its survival. One difference though is that GM has been in slow decline all decade and then dropped off a cliff this year.


Intel’s chart is interesting. It’s a loser this decade as well, down almost 80% in the decade. But all of its decline happened in the first three years of the decade reflecting the technology meltdown in the first part of this decade. Since then, it’s bounced around a lot but isn’t down much more.


Finally a real winner. Johnson and Johnson has made a slow and steady climb all decade, and is up (even with the recent market meltdown) by about 33% over the past nine years. Even so, that’s less than 4% per year.


I’m glad to see we found a good chart before this exercise was over. United Technologies is down 40% in the past year but is up around 60% for the decade so far.

So what this shows is the Dow is a mixed bag. A few disasters (GM, Citigroup, Intel), a bunch of so so stocks (like 3M) and a some winners (like J&J and United Technologies).

I looked at a few other stocks as I was doing those charts and there’s a lot of yuck in the Dow. IBM, HP, and Wal-Mart are all down for the decade. It’s not really clear to me how the Dow has enough positive energy to withstand the blowups in AIG, Citigroup, and GM. As a group, the Dow looks pretty tired to me.

The point I was trying to make with this post is that the decade we are in has not been lost for everyone. We may have to go outside the Dow to find the best examples. Lets look at two of my favorite stocks; Apple and Google.


Apple has taken two big hits this decade (the tech meltdown in the early part and the recent market bust) and is still up 3.5x in nine years. The run Apple has had from early 2003 to late 2007 is one of the most impressive runs I’ve seen.


Apple’s run mirrors Google’s run. If you had only owned two stocks this decade, Apple and Google, you’d be a happy investor. Google stock has completely blown up in the past year (down 60%) but it is still up 2.5x from its IPO in mid 2004.

When I think about what’s really going on in this "lost decade" it occurs to me that we are finally witnessing the impact of the end of the industrial era and the emergence of the information era. That’s not to say every "information stock" has done well. Intel and Microsoft have been a disaster. IBM and HP are down for the decade to date. But we also have to realize that the late 90s drove all information stocks up to crazy levels in anticipation of exactly this shift taking place. The market got it right, but as usual it overshot.

If we go back to Andy’s post which got this whole exercise started, he made the following point about what happens after the "lost decade":

at some point stock price returns will revert back up to the mean. In
fact, to revert to the mean, stocks will at some point have to exceed
the mean, in other words go up more than 8%. I know it could be years
off, but you see my logic. It’s just math.

And if that does happen, I don’t think it will happen in tired stocks like many in the Dow. It will be stocks like Apple, Google, and companies we don’t even know about yet that will lead us back out of this downturn. And I bet there will be a bunch of companies from what we used to call the "emerging markets" that will lead us out of this mess. I think I’ll call them the "emerged markets" from now on.

I am an optimist, I guess you have to be one to be in my line of work. Even in the midst of the worst downturn in my lifetime, I am thinking about what’s next, how we are going to make money in the next run. Because as Andy points out, there will be one and we should be using this downturn to position ourselves well for when it comes.

#stocks#VC & Technology

Comments (Archived):

  1. vruz

    there’s no better time than today 🙂

  2. Mark Dykeman

    The thing is, if you go back a year and measure the growth in that period of time, the trend looks quite different, because it would miss that huge dip that’s occurred in 2008.If you look at trends over time, Fred, then there’s some justification in being an optimist.As for “tired” companies vs. new companies, we’ll see if you are right. I have a feeling that the determining factor for long term success will be whether or not companies were highly leveraged without sufficient profit margins, not whether it’s “tired” vs. new.

    1. infoarbitrage

      Mark, I think the issue has more to do with commoditization, which is the key driver of profit margins. Differentiated offerings will yield high margins (AAPL, GOOG), while those which are commoditized will not. Technology as an enabler will help spur innovation, changes in production processes and product design and will foster differentiation and value-added. Capital structure decisions are the province of managements, and there will always be some that are good and some that are not, so I think leverage is too situation-specific to make generalizations. Interesting question, for sure.

      1. fredwilson

        wow, what a great conversation this post has already spurred. it’s interesting to note that both $goog and $aapl have no leverage in their balance sheets

  3. howardlindzon

    exactly fred and all any investor has to do is watch the all-time high list and NOTHING else to catch them. they show up there first. No tv, no magazines, no cnbc….something I have preached for much time. Good news is nobody does it and the winners will go unnoticed for long periods of time.

    1. Marc Brandsma

      unnoticed, this is pretty counter-intuitive and not much supported by evidence

      1. howardlindzon

        My fund and many others are evidence actually

        1. Marc Brandsma

          your fund is actually you first and no pre-determined investment strategy. besides, i don’t see daily trading on the top 10 stocks as a strategy per se. with higher liquidity and high visibility, these stocks have greater std dev making it easier to avoid fundamental analysis type of decision. if you’re currently successful, then enjoy because it may not last forever, as we all know. i find it hard to believe that constantly betting on winners is a/ a winning proposition on the long run b/ if a/ stands, something other people didn’t noticed

    2. infoarbitrage

      Howard, the fact that you might be right scares me…

      1. howardlindzon

        rather early on a sunday to be already dissing me 🙂 no?

        1. fredwilson

          Its NFL Sunday and the Jets are playing the Titans. I have to get my gamegoing somehow.

          1. howardlindzon

            More importantl cards/giantsI have stock market flu, but NFL fever baby

          2. infoarbitrage

            you go, boy!

          3. Ryan

            Speaking of being scared early on a Sunday, Jets vs Titans?!? Fred you are a brave man 😉

  4. jquaglia

    Fred. This is just a really great post. Makes me look at the market–and particularly the Dow–in a completely different way.The thing that has concerned me about relying on the “information age” to get us through this though are the revenue models of many Internet companies. I feel that companies with revenue models built on advertising will not be strong enough to pull us out of this mess. I’m also not sure that Internet companies will continue to see signoficant employment growth. Our most useful tools, Google for example, can be built by a relative few people compared to our manufacturing giants of the past.

    1. fredwilson

      well i think we have to remember that “advertising” or maybe even “marketing” is typically a significant part of most companies costs structures. some companies like coke (a dow company) spend a huge amount on marketing.that’s not going to change and the internet facilitates connections, conversations, and commerce better than any other medium.i too am not optimistic about marketing and ad budgets in the next year or two, but its not like companies can stop marketing. they simply have to find out how to reach customers more efficiently

      1. jquaglia

        To your comment about the Internet facilitating commerce. I have always wondered if the Internet has created more value in simply the companies built directly off of it, or in the efficiencies it’s created for virtually every company in the world.

        1. fredwilson

          The latter for sureIt reminds me of my friend Mark Pincus’ comment to me about a year ago.He said ³someone is going to build a business on top of social nets that ismore valuable than any social net²I laughed at himNow I am sure he’s right.

          1. Druce

            the Internet ecosystem is similar to the Microsoft ecosystem in that one company (Google) gets most of the profits.But if you sum up the efficiencies created by each ecosystem, distributed throughout the economy, they are far, far greater than those profits.It should be hard for anyone else to build something on top of social nets, which in turn sit on the advertising platform, that’s more valuable than the layers they are built atop. It would be a strategic screwup, like IBM letting Microsoft build something more valuable on top of the PC. The 2 guys on top of the food chain (Larry and Sergey) would be expected to extract the most value if they do their job right.

  5. Mark

    Fred, good points on that last statement. The only investors who will make it out of this downturn (generalizing here) will be those able to look further ahead to the turn. I see you’ve been doing that plenty with GOOG and others, but of course, it all depends on what your time horizon is like because we’re clearly not there yet. But, I think one variable missing from this and Andy’s analysis are the qualitative ones. For instance, it’s difficult to take into consideration the emergence of the “information era” and how that impacted the markets. You have to go much farther back than ten years to understand how something so revolutionary affects the markets. Some researchers (me very little) have built some very interesting models (SEM’s to be exact) on the impact that certain technologies have had on long-term market trends over the last 120 years. Of course, the industrial revolution was the largest, but the market activity directly thereafter is quite difficult to compare. But, you also have the emergence of certain natural resouces; you have transportation changes emerging; and, you have manufacturing developments; etc, etc, etc. Suffice to say, the impact reflected that it takes much longer that ten years for the market to adjust to such changes. So, to say the last ten years has been a dud based solely on DJIA returns would be spurious to say the least. Good find and good analysis.

  6. shareme

    If emerging markets has value, is buy outs by big players in those markets how an investor may gain reward without exactly the company going public? I guess it only work if the deal was mostly cash or stock of buyer or both?For example, Google or Apple or Nokia could buy out a mobile web app dev start up that is targeting those touch screen devices with webkit browsers such as iPhone, Android, SymbianOS9 5th edition well okay that is a personal example :)Okay back to my Darwin OS install to get the ipHone emulator running..I should have word today on that other pesky seed capital funding issue with a PE person85% common code base across Android, iPh0one, and SymbianOS9 5th edition touchscreen devices :)Consumer LBS the easy way with no Server or very server infrastructure development..Still working on getting someone to get me a MacOSX Laptop for x-mas for the cause..

  7. David Dalka

    Very wise words…everyone needs to read them and internalize them!”I am an optimist, I guess you have to be one to be in my line of work. Even in the midst of the worst downturn in my lifetime, I am thinking about what’s next, how we are going to make money in the next run. Because as Andy points out, there will be one and we should be using this downturn to position ourselves well for when it comes.”

  8. Gerald

    I’m sorry, but I don’t see what this post is saying other than, statistically, some stocks will do better (or worse) than the average and that if you pick those stocks that do better than average, you will do well. It’s just a tautology to pull out a few stocks from the index and point out they’re either better than or worse than average. There’s no insight here.

  9. hardaway

    Why would anyone think the big returns would be in the established, tired companies of the Dow, when innovation and change come from small companies who are nimble enough to move with markets? I think we need to find new ways to look at investment in equities. The riskiest companies provide the best reward, and why wouldn’t that be true of public markets? It is certainly true in private markets.

  10. davidshay

    Thomas Kuhn argued that for a paradigm to shift, the older generation has to die. For real. Perhaps that’s what we’re seeing now, with AIG and GM fighting for their lives. The older generation of companies (and ideas) is dying. It’s not simply a shift from the industrial era to the information age. This has happened in the 80’s and 90’a What we’re seeing is the shift from an information economy organized around industrial principles into one organized around the laws of information (think New York Times vis-a-vis Automattic). In this respect, Fred, GOOG and AAPL are very different. Much of AAPL’s business is still in the old model (proprietary hardware, trade secrets, expensive branding and marketing), whereas Google is 100% new DNA. And the difference between the two is accentuated in their mobile strategy. I suspect that AAPL can’t keep it’s growth for much longer, unless it leverages its iPhone business for some scalable vertical integration (people paying for Apps, people downloading songs), vis-a-vis Google whose business depends only on being able to generate a lot of mobile traffic and selling ads against it.So when looking for the upstarts and startups that will be the innovators in the next decade, we need to look for those who embrace the full extent of the ubiquity of information. Those who profit as products in this new new economy become replicated, commoditized, and shared freely. Google tops this list, but Automattic, Revision3, AMZN (for its cloud computing business), Salesforce.com all come to mind– very different companies, to be sure, but all with the same basic realization: those that will win in the next boom are those that allow people to connect and share data, apps, content as easily and seamlessly as possible.

    1. fredwilson

      I totally agree about $goog vs $aapl. I’ve said that iphone is max and android is windows. One is an amazing product but closed. The other is clunky but openHowever $aapl has gone the next step with the app store and app economy. They may get their this timeI am not as sure about automattic. For an open source company, they are very closed to services that they don’t controlFred

  11. Andy

    as usual – a strong piece of work which has it’s genesis on the “treadmill of life.”this one will be in the hall of fame, when they reprint select posts for the book.best,Andy (and a smiling Richard Todd)

    1. fredwilson

      Book? I don’t need any stinkin books!

      1. Andy M

        if artie lange can be #1 on the NY times best seller list – and the Jets are in 1st place at Thanksgiving — well, you better be damn sure that you will write a book.it is not “if” but “when…….”(and it will be a best of this blog – alonmg with your comments from the treadmill and bike rides, and moments…..)AM

  12. Adam N

    The better way to do this is to give the ROI from a $10k investment. This methodology doesn’t take into account dividends. Over a 10 year period, 7% per annum will double your money over a decade.