Four years after hitting bottom, stocks are roaring back

March 7, 2013

It’s so much fun to own stocks these days, with the Dow Jones industrials and Wilshire 5000 indexes setting one new high after another, and the Standard & Poor’s 500 within 1 percent of doing the same. Watching the value of your portfolio rise is such a delightful indoor sport.

All this happiness and moneymaking (if only on paper) are what make Saturday’s anniversary so interesting and educational. What anniversary, you ask? Why, the fourth anniversary of the market bottom, reached by all three of the major indicators on March 9, 2009. You remember those days, don’t you? It was a hideous time, with people losing their jobs, house prices collapsing, the world financial system teetering on the brink and the U.S. stock market, as measured by the Wilshire, down a sickening 57 percent — or $11.2 trillion — from its high of 17 months earlier.

Why bother studying a market bottom when stocks are roaring upward? Because you make your real money in the stock market not by buying when shares are hitting highs and everyone wants them, but by buying when they’re down and holding on to them until everyone wants them. The trick, of course, is to have the staying power and self-confidence in case what looks like a cheap market gets even cheaper.

Stocks rose $11.3 trillion in value — that’s 138 percent — from the bottom through Thursday’s close, according to Wilshire. That has more than made up for the market losses that helped traumatize the economy during the financial crisis. The annual return is a bit over 26 percent, compounded.

Stocks may continue to rise — I certainly hope they do, because they make up the bulk of my net worth. But there’s no way that the market as a whole can continue rising at anything like its recent rate for any sort of extended period. For the market to rise at 26 percent, compounded, for another three years, the Dow has to reach 29,000 in 2016, and the S&P, 3100. That’s just not going to happen, unless the laws of arithmetic are repealed.

The Dow Jones Industrial closed at 14,253.77 on Tuesday, surpassing its record 2007 peak. But, in the midst of the sequester gridlock, the boost didn't come from Washington. Jia Lynn Yang stops by to explain the source of the stock market surge. (The Fold/The Washington Post)

When it comes to individual stocks, however, all things are possible — in both the up and down directions. That’s another lesson that we can take from the upcoming anniversary.

Let’s go to the “High Five” list — the five most valuable U.S. stocks the day the market bottomed, according to Wilshire’s stats, and the top five as of the close of business Wednesday. Exxon Mobil was No. 1 on both dates, with market values of $328 billion at the bottom and $408 billion at the top. But the four other stocks were different.

Apple, No. 17 at the market bottom with a stock value of $74 billion, was No. 2 as of Wednesday, at $400 billion. It was followed by Google (No. 11 at the bottom), Berkshire Hathaway (No. 9) and General Electric (No. 16). The market values of both Google and GE have tripled, and Berkshire’s has more than doubled, aided by the new shares it issued to complete its purchase of Burlington Northern.

At the market bottom, Wal-Mart ranked second behind Exxon Mobil, followed by Microsoft, Procter & Gamble and Johnson & Johnson. All of these are household names, and all have risen, with changes ranging from 30 percent for Wal-Mart to 75 percent for Microsoft. But they haven’t risen quickly enough to keep their High Five status. Apple and Google displacing Microsoft, despite a 75 percent jump — who’da thunk it? Certainly not me.

The bottom line: If you’re one of the stock market winners, spend a little time Saturday thinking about how fortunate those of us who own stocks have been for the past four years, thanks in substantial part to the government propping up the economy and keeping interest rates ultra-low. But please remember that a great four-year stock market doesn’t mean we have anything resembling a great economy. And also remember that although stocks have risen 26 percent a year, there are still plenty of people in this country who have plenty of trouble.

Sloan is Fortune magazine’s senior editor at large.

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