I ran across a provocative piece the other day at seekingalpha.com. Written by Moby Waller, the title asked: "Does Buy-and-Hold Work on Major Blue Chips?"
I'll concede that it's a good question. It's also, as Waller pointed out, one that many investors in big blue chips might be asking. After all, look at the 10-year average annual return of the following companies:
|
Company |
10-year average annual return |
|---|---|
|
Microsoft (NASDAQ:MSFT) |
2.4% |
|
General Electric (NYSE:GE) |
2.4% |
|
Coca-Cola (NYSE:KO) |
(1.4%) |
|
Wal-Mart (NYSE:WMT) |
7.4% |
Data: Yahoo! Finance.
Those returns aren't news to me, as I happen to own those companies (although not for the whole decade, for most of them). And it sure doesn't look pretty, does it? But concluding that buy and hold may be dead seems a little premature. For one thing, it all depends on which blue chips you look at. Check out the following:
|
Company |
10-year average annual return |
|---|---|
|
PepsiCo (NYSE:PEP) |
9.2% |
|
Target (NYSE:TGT) |
8.6% |
|
ExxonMobil (NYSE:XOM) |
11.0% |
Data: Morningstar.com.
Also note that during the past 10 years, the S&P 500's return averaged a bit more than 3% per year. So even Microsoft and GE didn't do too badly compared to the overall market.
Another consideration is dividends: While a stock's price might stagnate for a while, as long as the company is healthy, it's likely to continue making payouts to investors. In the case of Wal-Mart, its dividend rose from $0.039 per share to $0.238, an average annual gain of 20%. Coca-Cola's dividend averaged 10% growth.
More blue-chip investing considerations
Your ultimate result with any blue-chip stock will depend on when you buy it and how long you hold it. Coca-Cola's return over the past decade might have fizzled, but in the previous decade, it sizzled, averaging 34% annually.
Waller notes that, "The bottom line is the simplistic strategy of 'buy and hold' on blue chips stocks is no longer a guarantee of profits, or even a protection against losses. Today's "bluest of the blue chips" may be tomorrow's bloated, slow-growth, dead money stocks."
Oh dear. Well, I'd remind us all that no stocks guarantee profits. Yes, some blue chips do shrivel up and die, or just disappear. Look at Pan Am, Montgomery Ward, Woolworth, and so on. That's why you should keep up with the progress of any company in which you've invested.
