Ive been looking back at how well some of our top FTSE 100 stocks have done over the last ten years, including the worst recession for many decades.
Ive only looked at a few winners so far, with ARM Holdings way out in front with a 12-bagger over 10 years.
But how about on of our highest-profile losers, Tesco (LSE: TSCO), which shocked the market this week with the revelation that it had overstated its profits for the six months to 23 August by an estimated 250m?
That led to a 12% price fall on the day, taking the shares down 46% over the past 12 months to 203p.
And if thats not bad enough, the price is even lower today than it was a decade ago back in September 2004 youd have had to pay 285p per share, so youd be down 29%. That means a 10,000 investment in Tesco 10years ago would be worth only 7,123 today.
Or would it?
Dividends save the day
Actually, once we take into account the dividends Tesco has been paying, things dont look anywhere near so bad. Wed be down 29% on the share price, but a cumulative 4,227 in dividends would have countered that with a 42% gain.
Overall, that initial 10,000 would today be worth 11,350 thats an admittedly unimpressive 11% gain, but at least its not a loss.
Now, what about reinvesting dividends? Thats always a good strategy isnt it? Actually, no, not in this case. Pound cost averaging over the past 10 years would have damaged your returns, as the average price has been significantly higher than it is today.
Youd be 1,257 worse off if you reinvested the cash, with your 10,000 turning into 10,093 for a return of under 1%.
What do we learn from this? Two key things, I think.
While its a disappointing performance, its not the wipeout disaster feared by those who think investing in shares is just too risky. Youd have bought shares in a company whose trading turned sour, and held it through one of the worst stock market decades in recent history and though youd have done better sticking the money in the bank, you still wouldnt have actually lost any.
And then theres the lesson of diversification. If you spread your investment cash over, say, 10 to 15 stocks, the poor performers like Tesco will be more than compensated for by the winners.
Worse to come
But on a final sombre note, I havent looked at the worst performers yet Lloyds Banking Group and Royal Bank of Scotland are still to come.
Putting all your money into Tesco shares ten years ago would, with hindsight, not have been a smart move. But where are the leading lights of the investing world actually putting their money today? Take a look at where TMF’s top writers think The Smart Money Is Going by getting a copy of their latest hot report.
There’s a variety of strong companies examined, which are growing their earnings and paying handsome dividends.
Just click here to get your hands on our experts’ thoughts today.
Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended shares in ARM Holdings and owns shares in Tesco. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.