by Will Ashworth | June 27, 2014 7:00 am
Wharton professor Jeremy Siegel’s 1994 book, Stocks for the Long Run, examines the performance of stocks compared to bonds over rolling 30-year periods between 1802 and 1993.
Given the results — stocks outperform bonds over almost every duration, at almost every period in history — it’s no surprise the professor believes stocks are one of the best investments of all time. (However, bonds have been outperforming since the financial crisis.) They key, of course, is finding the right investments at the right time.
So, what were the best investments in 20th century? Taking a few liberties, I’ve gone ahead and listed what I consider the top 10. Quibble with some of my choices if you will, but all of these investments made their investors a considerable amount of money.
Three academics from the University of Cambridge, HEC Paris and Vanderbilt University studied the performance of five red Bordeaux wines compared to a variety of investments, including British equities and bonds over the same 112-year period from above. The trio found that the fine wine achieved an annualized real return of 4.1% — only 110 basis points less than the British equities but well ahead of art and stamps. These findings might come as a surprise to the average investor, but I’m sure wine aficionados have known for some time that it’s one of the best investments whether we’re talking about today or the 20th century.
Although it’s not an investable asset, it does affect even the best investments from time to time. Since 1962, the consumer price index, which the government uses to define inflation, has averaged 4.2% growth annually. That puts it ahead of commodities such as corn, milk and wheat. For this reason, that many suggest investing in inflation-beating assets such as gold, oil, stocks or real estate.
Equities in general did well in the 20th century. However, these two countries were particularly good to equity investors delivering an annualized return of 7.3% between 1900 and 2012, 100 basis points greater than the U.S. over the same 112-year period. While the extra 12 years might have provided a slight nudge across the finish line I don’t think it’s enough to make much of a difference. In terms of the best investments of the 20th century it’s hard to fathom that two countries from the southern hemisphere topped the list. I guess things really are that good down under.
These two are neck-and-neck when it comes to assessing the best investments. Using nominal prices, Seeking Alpha contributor Jeffrey Robinson examined the price increases of various assets over a 50-year period between 1962 and 2012. Robinson found that gold increased from $35.10 per ounce in 1962 to $1,669 by the end of 2012 — growth of 4,655%, or 8% per year. A close second was oil, whose price per barrel grew 3,164% over the same 50-year period. In contrast, the Dow Jones Industrial Average only gained 1,950% … but that excludes dividends. If factor in dividends, it becomes a three-way tie.
According to Robert Shiller, the best single period to have made an investment in residential real estate in the U.S. was between 1997 and July 2006. House prices nearly doubled in slightly less than a decade. The problem? More than 50% of the growth came after the turn of the millennium. For this reason, I point to another period of extreme growth — 1942-1947 — when real estate prices increased by about 60% as returning soldiers formed families and bought houses. It was irrationally exuberant compared to the real estate bubble of 2006, but with annual growth of 8%, it did prove to be one of the best investments of the 20th century.
I’ve been a fan of this passively managed grantor trust for several years. Around since 1935, the Voya Corporate Leaders Trust Fund’s (LEXCX) past performance earns it a five-star rating from Morningstar. The founders picked 30 companies that they believed could succeed under any conditions after surviving the depression. A $10,000 investment in December 1970 was worth $1.1 million at the end of 2013 compared to $750,000 for the S&P 500. A $10,000 investment all the way back in 1941 was worth $16.6 million at the end of this past year, an annualized total return of 10.7% over 73 years. As far as the best investments of the 20th century go, you could do a lot worse than this one.
Say what you will about Donald Sterling, but very few investments turn out as spectacularly well as his purchase in 1981 of the San Diego Clippers for $12.5 million. Now known as the Los Angeles Clippers, former Microsoft (MSFT) CEO Steve Ballmer is trying to buy the team for $2 billion. Very few sports teams sell for more than a billion dollars, so he’s sitting in pretty rare company. If sold, the Clippers will have achieved an annualized total return of more than 15% over a 33-year period. That’s Warren Buffet territory, making the NBA franchise one of the best investments of the 20th century.
Altria (MO), the tobacco giant once known as Philip Morris has performed miraculously since 1925. Maybe it’s the significant dividends paid to generations of shareholders or the successful diversification into other businesses such as beer and wine, but whatever the reasons, MO stock has produced an annual total return of 17% between 1925 and 2003 — 730 basis points greater than the S&P 500. A $1,000 investment in 1925 is today worth $1.2 million. Inflation, aside this can’t be ignored as one of the best investments of the 20th century.
Only an idiot would forget to include the world’s fourth-richest person. Warren Buffett’s legacy with Berkshire Hathaway (BRK.B) is known to all but the most beginner of investors. The Oracle of Omaha has taken a bunch of smallish investment partnerships and turned them into the giant conglomerate and holding company we see today. Between 1965 and 2000, Berkshire Hathaway’s book value increased by 23.6% on an annual basis, almost 12 percentage points better than the S&P 500. It’s safe to say that qualifies BRK.B as one of the best investments of the 20th century.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.
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