Guest Post: The Gap Used to Be a Penny Stock, by Chris Pascale

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.

RECAP

$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.

Click here to be taken to its Amazon page.

(Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)

 

Again: Don’t Panic!

If you follow my YouTube channel, you’ve likely seen the video I posted over the weekend urging people not to panic over the downturn in the stock market.

Today the Dow continued the selloff, closing at 24,345.75, down 1,175.21 points.

And I’m telling you – still – DO NOT PANIC.

Now, the media would have you believe that today is the biggest down day in the history of the stock market.  At the time I am writing this, in fact, CNBC has preempted its regular programming to air a special live broadcast titled “Markets in Turmoil”.

In terms of total points or absolute dollar amount, today is yes, indeed, the “biggest down day”.  The Dow, however, has been at an all-time high – so obviously, periodic declines are going to be larger.  That’s simple math!

The percentage is the figure that matters here.  The Dow was down today by 4.60%, which is far below the top 20 percentage declines in history.  (The biggest was October 19, 1987 – commonly known as Black Monday – when the Dow closed at 1,738.34, down by 508 points and 22.61%.)

Again, this is very simple math to understand.

So, Janes and Joes, I implore you…please don’t react to the media hype!  You know and I know that the media’s job is to sensationalize every event that happens and make mountains out of molehills.

Look, I’m not saying that these selloffs should be ignored…but I’m telling you, the worst thing you can do is to react in panic to the headlines in the media.

If you are currently holding a position in any stock, keep holding.  

The Dow will continue to rise.  Take a look at this chart that shows how it’s risen over history, through every type of tumultuous event imaginable.

As always, I welcome and encourage your thoughts in the comments!  Please also follow me on Facebook, Twitter, Instagram, and YouTube, and check out my ebook, The Stock Market is for Everyone, on Amazon and Smashwords.

Until next time!

 

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.

Click here to be taken to its Amazon page.

(Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)