Back to the Future, A time machine can’t help us pick stocks…
By Jamie Ostrander
It’s just like Huey Lewis and the News sang, we’ve “gotta get back in time”.
If you could go back in time to buy shares in a company that was an expert in technology, during the past 40 years, and is still currently in the same business, it would seem to be a fool-proof stock pick.
If you can, try to remember the time before cell phones. There were pay phones at every public gathering place. There was a sea change in our lives around communicating from anywhere to anywhere at any given time, without a cord to keep us tethered to the kitchen counter. It came and developed faster than anyone expected.
What about investing in the company that created the first cell phone. A company that we now know has stood the test of time and survived the dot-com bubble, credit crisis and great recession, and now continues to produce new and innovative technology? If we found ourselves hopping out of a DeLorean outfitted with a flux capacitor and we arrived in the early 80’s, wouldn’t Motorola be a sure fire bet?
How well Motorola did by itself isn’t going to help us gain clarity, we need to contrast it against another company. Let’s pick a stodgy, older company with a pedestrian product line. What about Hormel foods? Is SPAM a worthy opponent?
The chart below shows some similarities in size and relative profitability, the dividend yield is currently very close along with their overall market size.
Hormel Foods vs. Motorola (longest common time available, as of Jan. 31, 2019)
Of course the data shows that Hormel Foods outperformed Motorola since 1979 by a staggering margin. As of the writing of this article, Hormel would have given you over 17,000% in additional return over Motorola. Now that’s a lot of chili!
(source; Google Finance Feb. 9th1979 to Jan. 25th2019)
In 2011 Motorola disconnected itself from the mobile phone business, and after being owned by Google for a few years, it is now part of Lenovo.
Companies rise, new technologies are born, and it is difficult even with the benefit of hindsight to predict individual stock performance. One thing we can all agree on is, SPAM and Dinty Moore canned stew was a good investment. We can also agree that diversification is a great way to capture returns and reduce risk all while avoiding the trap of stock picking.
If you are not currently committed to a rigorous and academically disciplined investment methodology, the WealthCoaches here at FirstWaveFinancial are happy to share with you our approach and some of the research that we believe really is the next best thing to having a time machine.
You should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of the FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request.