For those of us of a ‘certain age’, the movie Monty Python and the Holy Grail was a must see (and often far more than once). One of the many classic scenes depicts a worker rolling a large barrel from house to house collecting dead people. Someone on the cart says in a meek voice, “…I’m not dead yet.” The 2 characters go on to argue about whether the cart-dweller is actually dead, the guy rolling the cart not wanting to have to drop the not-yet-dead guy back at his house (my description does not do it justice, but it is a very funny scene).
Often stocks are ‘left for dead’ as well. There have been many otherwise great companies that flounder around for years, going essentially nowhere (or worse yet drifting downward) from point A to point B, before exploding for multiple years’ worth of gains in very short periods of time.
MSFT was ‘dead money’ for years in the 2006 – 2014 time frame, many investors thinking the company’s best days were behind them. In the last 10 years the stock has more than 10Xed not even including dividends (more on that in a moment).
WFC is another example of a company being in the penalty box and trading in a tight range for years while it dealt with regulatory issues (even the great Warren Buffett finally gave up on it in 2022, although in his case he got out too early as the stock has more than doubled since that time period).
The once bellwether, T, had its own issues for years when it bungled the WBD merger/spin off and cut its precious dividend in 2022. Its stock price subsequently got cut as well, dropping around 50% to its nadir and essentially wallowing until finally reigniting and more than doubling in about 18 months.
A few important points to consider:
- You always need to continue to do your homework to ensure that any lack of upward movement in stock price over long periods is not due to something fundamental that is not likely to get resolved. Using WFC as an example, it was clearly regulatory overhang that was depressing the stock, and once that lifted, the price shot up dramatically.
- You can use periods (whether brief like in early April 2025 or other times when the overall market drops dramatically and takes most stocks down with it, or extended like the ones described above) to accumulate shares. There is tremendous power (in terms of higher future returns) for dollar cost averaging as a stock falls. When Buffett says he hopes a stock declines after he buys it so he can buy more, he is not playing games – he means it and has acted accordingly. If you could go back in time and either buy or sell otherwise high-quality companies when their prices were temporarily depressed, even though at the time people were selling right and left, you would be happy to accumulate shares.
- Do not underestimate the power of dividends (which is its own version of dollar cost averaging). In the case of T, even after factoring in the dividend cut in 2022, you would have collected over $4 of dividends in subsequent years, often reinvesting that cash at much lower prices, providing both positive capital gain returns as well as materially higher future income as the stock ultimately rebounded.
Bottom line, high-quality stocks have a tendency to go up over time, even if they have years where their price goes essentially nowhere. Often gains come in chunks during brief periods; they are rarely linear in nature (the same is true with the overall market which is why it is funny that most analysts predict next year’s returns around 7% to 8% even though in any given year the broad market rarely actually provides average annualized returns). It is very important to be patient, especially if the company pays a dividend which can lead to a large accumulation of shares and higher future income.
A stock may appear dead, but give it a little time to come back to life, and you may be handsomely rewarded when you are looking the other way.
Never Invest Based on Short-Term Headlines
“US Drops Bombs on Iran. Iran Retaliates and Launches Missiles at US Bases.”
These were recent headlines. Had your crystal ball been back from the cleaners and you knew of these events ahead of time, you would have lost a fortune had you made the ‘logical’ bets of going long oil and short stocks. What actually happened? Stocks rallied, and oil plunged. Just another of an endless line of examples when the ‘obvious’ trade turns out to be dead wrong. Always invest in stocks for the long term based on fundamentals, not today’s headlines which will soon be forgotten – except by those who tried to make a quick buck getting in and out of trades that went the opposite direction as expected.