Historical growth of $1000 example
In getting ready for the “Got Money?” Girl Scout workshop, I thought it might be neat for the girls to look at stock market volatility and returns in action. I chose (at random) six NJ publicly traded companies: Campbells, Bed Bath and Beyond, Commerce Bank, Johnson and Johnson, A&P and Prudential Financial.
I’ll ask the girls to “team up” for each company and tell me why they think the company is a good stock “pick”. Should be illuminating to hear the thought process. After we go through a little discussion, we’ll take a look back to 12/31/2005 where they’ve been “given” $1000 to “play” the stock market. We’ll chart the progress of each stock through March 12, 2008. This simple chart will illuminate the way:
The main points I’d like to address:
- Volatility: What’s the likelihood of them holding Bed Bath and Beyond past 2006 (where the decline in value was of over 22%);
- Uncompensated Risk: Buying one stock or a few stocks is very risky as you do not get “compensated” by the stock market for holding a non-diversified portfolio; and
- Returns: Only 1 of our 6 stocks beat the Wilshire 5000 (Campbells) during this period. All others lost. How likely is Campbell’s out-performance likely to continue?