Since we most recently recommended a manufacturer of clothing tags in the Motley Fool Hidden Gems newsletter, let's stop to consider just how likely the clothing label industry is to produce spectacular investment returns over the coming decades. And for that matter, past recommendations CNS (nasal strips), Middleby (ovens), and Mine Safety (mine safety equipment, natch) -- even if all of those recommendations are up more than 100% since their newsletter debut, what long-term future could they possibly have?
To find our answer, consider the lessons learned from watching Backto the Future, Part II. In that movie, Biff goes back in time and gives his 1955 teenage self a sports almanac from 1985 that lists all the winning sports teams for the next 30 years. Armed with knowledge of the future and what to bet on, Biff gets rich.
But what if, instead of sports, the elder Biff had gone back in time to the 1950s with information about what the very best investments would be over the next 50 years? What secrets would he be whispering? Health care? Television? Communications? Plastics? Laser Beams?
From The Future for Investors by Jeremy Siegel, which tracks results back to 1957, we get an answer: What you should have invested in to get really rich from 1957 to today were smokes, glass milk bottles, cans, second-rate soda, and unfashionable women's wear.
Assuming you reinvested dividends, kept spinoffs, and held onto the acquirer when an original company was bought out, here are the top five investments, according to The Future for Investors, you could have made from the S&P 500 in 1957:
|Investment Return Rank, 1957-2003||Market cap rank, 1957||Original Name||Now known as (or part of)||Accumulation of $100 investment, 1957 to 2003|
|4||485||Dr. Pepper||Cadbury Schweppes||$239,222|
|5||458||Lane Bryant||Limited Brands||$199,787|
Other than the stultifyingly boring and non-revolutionary nature of what they were doing, one common thread is that, with the exception of Philip Morris, these companies were among the very smallest of the companies in the S&P 500.
Had you followed the strategy of simply buying the very biggest companies in the S&P 500, it certainly would have seemed that you were buying into a more exciting future, one concentrating on telecommunications, oil, aerospace, and chemicals -- all industries that have grown substantially in the intervening decades. Here's what your returns would have looked like, however, according to Siegel:
|Return rank||Market cap rank, 1957||Original Name||Now known as (or part of)||Accumulation of $100 investment, 1957 to 2003|
|120||2||Standard Oil of New Jersey||
|329||4||E.I. DuPont de Nemours||
All of these companies have played major roles in the economy over the past 50 years, and a couple have even thrived. On the whole, though, these giants with obviously promising futures as a group provided below-average returns as stocks over the 47 years that made up Siegel's study.
So it makes more sense than you might think to look for the small, seemingly boring companies in out-of-favor or even doomed industries. You can check out every boring small-cap company recommended in Hidden Gems by taking a no-risk 30-day free trial. To date, the recommendations in the newsletter are up 35%, versus 10% returns in the S&P 500.
This article was originally published on May 13, 2005. It has been updated.
Bill Barker doesn't have a financial position in any company mentioned here. SBC is a recommendation of Motley Fool Stock Advisor. The Motley Fool isinvestors writing for investors.