Over the last 100 years, the Dow Jones Industrials have risen created 213x return. $97 investment is now worth $21,000. The power of this industrial and technological machine called America is truly special. Yet, with such amazing performance over the last 100 years, less than half of the population puts money into the stock market. I view equity investments in terms of company profiles. Some companies have profiles that make them good investments, others do not. I do not believe that equity investments should take the form of charting a price to determine direction or relative strength, rather be thought of in terms of long-term holdings bought at prices that can provide a margin of safety and capital appreciation in excess of what the overall market can provide.
For the Dow and S&P, that’s between 8-10% year, on average. Compared to the historic rise of the overall American housing market, it’s 100-150% better every year. A good rule of thumb is to only make equity investments that are capable of doubling in value every 5 years. If you’re not good at finding those, simply buying a market index will beat most other assets you would ever think about buying.
Want to know how and what to buy? A good place to start is Warren Buffett’s annual shareholder letters. They date back to 1977 and document the rise of Berkshire Hathaway into the global powerhouse it is today. Read all 40 and you’ll get a much firmer grasp on how to evaluate equity investments from the best investor ever. You can also pick up the Intelligent Investor by Ben Graham, Buffett’s mentor. I like the site Finviz for screens, Morningstar for analysis, and read the news from over 20 resources daily.
The Bottom Line: Investing in equities generally produces better results than any other major asset class.