The
Dow Jones business average
and the
S&P 500
has returned about 10% a year for a hundred years. These results mean that around $ 3,000 invested in the late 1920s was worth about $ 41 million today.
Barron’s we took a look at the numbers as we turn 100. It was partly an exercise in nostalgia, but also an interesting journey through the connection of unions that are American physical history. More importantly, looking at the market over a long period of time offers lessons on how you can make money for work.
Like investing in itself, digging into old age data is not simple. We tried to work out 100-year results for the indexes, as well as some prominent companies that traded continuously for a hundred years.
For the indices, the price levels are easy. The S&P closed at around 6.8 in 1920. The Dow ended that year at around 72. The S&P closed out 2020 at 3,756 and the Dow closed above 30,000.
That works out to average annual gains of 6.5% and 6.2% respectively. That’s not 10%. But historically about 40% of the stock’s total yields are in shares. And it’s hard to get a list of shares for a hundred years.
For companies, it is almost impossible to measure 100-year accounts, although we managed it for a while. A lot happens to companies in an era involving unions, spins, stock splitting, and name changes. And it’s harder to get shares for companies for a hundred years than to get them for an index.
Collecting the data, necessarily, need to look at stock records published in Barron’s and The Wall Street Journal decades ago. The companies we started looking at didn’t help at all.
These included:
Altria
(ticker: MO), former Philip Morris;
General Electricity
(GE);
Pacific Pacific
(UNP); and
Honeywell International
(HON), among others. Honeywell, for example, was just celebrating 100 years of trading on the New York stock exchange.
However, neither Honeywell nor the exchange could answer the question: What is the 100-year average annual return of Honeywell stock?
They cannot be blamed. A hundred years is long. And Honeywell is a liquidation of Allied Chemical & Dye – which eventually became AlliedSignal – with the Minneapolis company Honeywell Regulator, which eventually changed its name to Honeywell.
Allied Chemical was formed in 1920. Minneapolis Honeywell was founded in 1927. Then Allied and Honeywell merged in 1999, creating what are now investors called Honeywell International. Recently, Honeywell has started a few companies, including
AdvanSix
(ASIX). Monitoring the spins is an added headache.
In the end, Barron’s looking for that
United States steel
(X) has returned about 5% a year on average over the past century. GE controls about 9%. Union Pacific has outperformed the Dow by slightly at 11%, while Altria is taking the cake, returning around 15% a year.
Performance will be better. Ten percent a year on $ 3,000 grows to $ 41 million. Fifteen percent on $ 3,000 grows to $ 3.5 billion. That is impossible. But Altria has also spun out
Mondelez
(MDLZ) and
Philip Morris International
(PMI) combined with a market capitalization of approximately $ 290 billion. It would be a very large company today.
In addition, the parent company has paid in nominal shares worth millions over 100 years based on an initial installment of $ 3,000.
The figure of $ 3,000 was not chosen at random. That was the average household income in 1920, according to the Income Service. Many Americans cannot afford a one – year salary on the stock market all at once, but the growth still reflects the power of collecting produce.
Combining power is one of the biggest investment lessons from the 100-year return exercise. But there are others. Growth, market share, and business structure are always important for stocks.
Electricity demand has gone up by an average of about 4% per year since many Americans read by candlelight. That boosted the GE industry.
The total thousands of railroads on the U.S. have not grown at all, but the goods that have been shipped over them. In addition, it is difficult to build a competitive railway from scratch. Union Pacific helped show the world the benefits of network influencers – the challenge of challenging an owner with huge cash flow, knowledge and infrastructure that is difficult to reproduce – decades before Google Alphabet (GOOGL) parent took control of the search industry.
Consumer products are usually sustainable investments, at the same time including addictive ones. And commodity industries can be tough, as U.S. Steel products point out.
What is also clear is that, in the long run, shares are huge. And even the big growth companies of long ago – GE and US Steel were the FAANG stocks of their day – they eventually paid shares.
And that’s part of the answer to the question: How do you turn $ 3,000 into $ 41 million? Invest in the stock market, reinvest the shares, and don’t touch the money for 100 years.
Corrections & extensions: If you invested $ 3,000 in the late 1920s and earned 15% a year for 100 years, it was worth $ 3.5 billion. An earlier version of this article incorrectly stated $ 3.5 trillion.
Write to Al Root at [email protected]