Good evening, Joes and Janes! Tonight I’d like to once again turn the floor over to Chris Pascale, author, accountant, former CFO of Portfolios with Purpose, and current member of the IRS’ Office of the Chief Counsel. Take it away, Chris!
The Gap Used to Be a Penny Stock: More Proof That Eric Is Right
As I mentioned in a previous guest post, I’m working with my children so that they can learn about the stock market. My main goal is that they start saving young. If they become savvy investors, that would be an incredible bonus.
Recently, my 12-year-old asked me what the stock market is. Apparently, it’s mentioned on her news-feed. So, adapting the definition Eric gave us in his book The Stock Market Is for Everyone, I told her:
“Just as you can buy pieces of produce at the farmers market, you can buy pieces of businesses at the stock market.”
We were at Old Navy while having this discussion, so I looked up the stock to show her what it would cost to own a piece of the business. What I found was that Old Navy is owned by Gap, and that in 1980, you could have bought shares for as little as 5 cents!
1,000 Shares of The Gap for $50
Yes, if you were 18 or older you could have owned Gap shares for just 5 cents each. And that would have been expensive because they went as low as 3 cents that year!
Knowing this, let’s explore just how rich Baby Boomers could be if they had slowly bought shares from 1980 through 1985, spending only enough to buy 1,000 shares a month. This math will only account for average-ish prices, noting the cost of 12,000 shares each year.
· 1980: 12,000 shares for $600
· 1981: 12,000 shares for $1,000
· 1982: 12,000 shares for $1,500
· 1983: 12,000 shares for $3,100
· 1984: 12,000 shares for $1,900
· 1985: 12,000 shares for $3,000
The Cost v. The Reward
Now, to be fair, I was born in 1982, so I have no idea what kind of income I could have made during this time. But we can all agree that every working person could have figured a way to come up with $50 once a year, if not once a month.
Had someone executed the above purchases, he would have spent $11,100 for 72,000 shares of Gap stock.
Today, that investment would be worth over $2,300,000. And for those who only could have bought 1,000 shares a year, they would have about $192,000 after only risking about $1,000.
Applying This to Today’s Market
Why not find good companies with products and services you use all the time, and slowly acquire shares?
For example, do you use Facebook (FB) every day? Well, if you would have gotten in at the IPO, you’d have more than a 500% gain (just 6 years later!). And if you bought more shares after it slumped to its low in August, 2012, that money would have grown by 1,000%.
Am I saying that Facebook stock will keep going up? No. But history indicates that companies like Facebook have.
It’s the reason why every dollar invested into Johnson & Johnson (JNJ) in 1979 has grown by about 90-100x. The same can be said for Pepsi (PEP). Had you bought Microsoft (MSFT) shares in 1986, they would have only cost you 10 cents each, meaning that $1,000 invested 32 years ago would be worth $900,000 today.
We all want to get rich fast, but could you settle for getting rich within your own lifetime? Because you can.
$1 of Gap stock from 1980 is now worth over $300, $1 of Facebook stock from August, 2012 is worth $10,
and $1 of Johnson & Johnson and Pepsi stock from 1979 is worth about $95.
Eric here. Thanks, Chris, for this powerful illustration of what your wealth could be if you had invested years ago! Please, folks, don’t wait another day – get in the market NOW!
My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.