The Power of Time in the Market and What It Can Do For You.
I originally posted this on Medium!
When speaking about investing the general rule is — past performance is not indicative of future results. But we sure can learn a lot from the past. Today we will be looking at the scope of what’s possible by conducting a little thought experiment.
What if you bought the stock of a company instead of its product when it first came out?
To keep it fun we are going to look at some of the most iconic products of all time. Let’s start with something very well known all around the world.
This example might be a little bit extreme, as we have to go more than 100 years back in time. Although the Coca-Cola company has been operating since 1886. The year we are interested in is 1919. Because it’s the year of the company’s IPO (initial public offering). Meaning the shares of the company became available for the general public to buy. The company was listed on the New York Stock Exchange (NYSE), for an initial price of $40 per share.
Between 1886 and 1959, the price of a 6.5 US fl oz (190 mL) glass or bottle of coke was set at five cents. So if we invested these five cents into the company, we could get 0.00125 shares. Technically it would not have been possible, because buying fractional shares back then was not a thing. But for the sake of our thought experiment let’s assume it was. Accounting for stock splits since then our 0.00125 shares of the company would now have turned into 11.52 shares today. And that would be worth $707.21 at the time I am writing this article. And that’s assuming you didn’t reinvest dividends.
Although $700 is not life-changing money. This example shows what 100 hundred years in the stock market can do. In terms of percentage, this works out to be a 1406260% gain. Or more than 14 thousand times your original investment. So if you are more than 100 years old, and saved one dollar on sodas in your childhood, and invested the money in shares of Coca-Cola company instead. You now have at least $14000.
Let’s move on to something a bit more costly than five cents. And not so far back in the past.
Nike Air Jordans
The year is 1985 and you can get this fresh model off the shelf for $65. But you decide not to because you are going for the stock, not the product. What does $65 get you? Nike's stock price at the time is about $44.9. Meaning you can afford 1.447 shares of the company. And adjusted for stock splits that would be 185.21 shares today. And that’s worth about $27,529 at the time of writing this article. Which works out to a 42,254% gain.
So what’s better? A pair of fresh Nike sneakers in 1985 or $27,500 in 2022?
Let’s move on to the next one. Again a bit more expensive, and a bit closer in time to today. If you’re into video games I am sure you know this one. Or even have had one.
A classic video game console, and a dream of almost any teenager back in the day. First released in 1994 in Japan. But we are going to be focusing on the release in North America on May 11, 1995. With a retail price of $299. The stock price at the time was about $48 which would get you 6.23 shares of the company or 12.46 shares adjusted for splits. And the value of those today equals somewhere around $1555. It might not be as impressive as the previous examples, but you could still buy 3 of the newest PS5 consoles with that amount of money today. In terms of percentage, this works out to 420% gain.
The next one is something really iconic. Something that changed the way we live our everyday lives forever.
The first of smartphones as we know them today. One of the most iconic products of all time — the original Apple iPhone. Released on June 29, 2007, with a retail price of $499. This device began the smartphone era. I'm sure everyone has heard of it. And some of you are probably reading this on an iPhone. Newer model, nevertheless iPhone. But let’s get to the important stuff. How much money could you have now, if you invested 499$ in Apple instead of buying the original iPhone?
The stock price at the time was about $120, meaning you could have gotten about 4.16 shares for the price of the original iPhone. And adjusted for stock splits that would equal 116.48 shares today. And at the time of writing this, that would be worth $20,159.19. Not a bad return, right? In terms of percentage that’s a 3939.92% gain on investment. And yes, that’s not accounting for dividends.
Now let’s imagine you had saved up a little bit more and decided to buy something from one of the best-performing companies in the stock market of the latest years. Yes, we are talking about Elon Musk’s Tesla.
Tesla Model S
The model S was officially launched on June 22, 2012. And the price of the car was $57,400 for the 160-mile version. The price of Tesla stock at the time was about $33.785 per share. The amount of money needed to buy the vehicle would get you approximately 1699 shares. Or 8,495 shares adjusted for splits. And now 10 years down the road that is worth quite a lot. $8,916,436 to be precise. Now that sure is a life-changing amount of money. In terms of percentage, we are looking at a 15433.86% increase in value on your investment. Not bad for 10 years of investing, isn’t it?
Looking at things from a different perspective can change a lot. Knowing that your money can be worth a lot more in the future can help you live more mindfully. Maybe next time you go out shopping you will think twice before buying something and decide to buy shares of the company instead. There are no guarantees of course. But if the products are good, it is highly likely that the shares of the company making them will be worth a lot more in the future. This is not investment advice, just an illustration of what time in the stock market and compound interest growth can do. If you are new to investing I would advise you to read more on the topic.