My friends at St. Louis-based Buckingham Asset Management recently issued a paper which quoted from Berkshire Hathaway's 2004 Annual Report, and that as we all know, means Warren Buffett:
"Over the past 35 years, American business has delivered terrific results. It should therefore have been easy for investors to earn juicy returns. All they had to do was piggyback Corporate America in a diversified, low-expense way. An index fund that they never touched would have done the job. Instead, many investors have had experiences ranging from mediocre to disastrous. Investors should remember that excitement and expenses are their enemies."
I don't know if you know this but every year the Dow Jones issues its performance list of companies for the particular year with what it calls the highs and lows. The 2004 performances by Dow show relatively typical variance among its individual holdings. Its five best performers returned between 21 and 31 percent while its five worst performers returned between -16 and -28 percent.
Like many other market indices, the Dow experiences up and down years. Actually, last year some 60 percent--18 of the 30 Dow holdings--performed better than the average 5.3 percent return experienced by the overall index.
So, getting back to that list, want to know who were the best and the worst performers? At the bottom of the barrel is Merck, down 28 percent, with Intel close behind down by 27 percent, Pfizer at -22 percent, General Motors at -21 percent, and Coca-Cola down by 16 percent. Some surprises there, eh, although GM may not be such a bombshell as it has recently been categorized by one index as being in the junk bond category.
Now to the top five. In fifth position, up by 21 percent, is Home Depot, and then Boeing up by 25 percent (actually, it is tied with Johnson & Johnson, also up by 25 percent). The runner-up spot belongs to ExxonMobil up by 28 percent. And the leader? Big drum roll please. "You want that with fries," Rosie?" It's McDonald's leading the parade, up by 31 percent.
However, keep one thing in the forefront of your mind. This all serves as a good lesson in why it is vital, year after year, to maintain a cost-effective, disciplined outlook based on expected long-term results. Buckingham says, "The only way we can know which stocks will outshine others in a single year is in retrospect. Thus it is best to avoid participating in the active game of trying to predict them and incurring high transaction costs in the process."
Want to predict this year's winners and losers? Sure, take two and hit to right!
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