The Dow Bounced Back 5 Years Ago -- Led by Bank Stocks

Five years ago, the Dow Jones Industrial Average bounced nearly 6% higher on a sign of strength from a major bank. The blue-chip index hasn't looked back since.

Mar 10, 2014 at 2:00PM

Time flies when you're having fun.

Five years ago today, the Dow Jones Industrial Average (DJINDICES:^DJI) saw a serious turning point in the then-ongoing subprime-and-Lehman Brothers meltdown. Citigroup (NYSE:C), which was a Dow member at the time, said it had actually seen a profit through February of that year, instantly restoring some faith in the crippled banking system. The Dow closed 5.8% higher that day, and never looked back at 6,500 again.

Citigroup shares jumped 17% on the same news. Bank of America (NYSE:BAC), which also was a Dow member five years ago, soared 10% higher. JPMorgan Chase (NYSE:JPM), which still holds its Dow seat, raced 12% higher. It was a good day to own financial stocks, for the first time in several months.

Almost exactly six months after Lehman's 2008 bankruptcy filing, the Dow had lost 41% of its value. And that's where the long climb back to healthier returns started in earnest.

JPM Chart

JPM data by YCharts.

This is also a useful reminder of Baron Rothschild's recommendation to buy when there's "blood in the streets."

If you smelled the market bottom and invested five years ago, you'd be enjoying a 150% return on a straight-up Dow tracker today. For even bigger opportunists, each of the bank stocks mentioned above have at least tripled in value.

True, our own Morgan Housel worried then that Bank of America still could implode like another Lehman, and that the single-digit share prices for most of our major banks just made sense. It takes guts to invest in banks against that backdrop.

But then again, master investor Warren Buffett picked the same week in 2009 to say how much he loved bank stocks: "The banks are getting their money very cheaply, deposits are coming in, spreads have never been wider, all the new business they're doing is terrific. They will earn their way out of it [in the] overwhelming number of cases."

As it turns out, Buffett was right. It didn't take long for the surviving megabanks to earn back their subprime losses, fueling the share-price gains seen in the chart above. Here's JPMorgan's basic performance as an example (with the 2008 recession shaded in):

JPM Net Income (TTM) Chart

JPM Net Income (TTM) data by YCharts.

Long story short, five years of perspective makes it much easier to find the investing lessons from the 2008 crash. Keep these nuggets of insight in mind the next time a major market correction rears its ugly head -- it might be another wealth-building blessing in disguise!

Learn more from the world's greatest investor!
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America, Citigroup, and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information