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The Rest of the Story

Investopedia published an article by Lyle Niedens on April 18, 2023, naming the five best-performing stocks in the S&P 500 over the 25-year time period from January 1, 1998 (for historical context think Titanic or Charles Woodson winning the Heisman over Peyton Manning and Randy Moss) to December 31, 2022 (think… I don’t know, four months ago). Would you care to take a guess at the winners?

If you said Apple or Amazon, those were pretty good guesses. They came in at No. 2 and 3, respectively, with Tractor Supply Co. and Old Dominion Freight Line rounding out the top five. Impeccably designed gadgets, shopping in bed, and good ol’ industry are pretty strong earners.

No. 1 surprised the heck out of me, because… gross. The number one best performing S&P 500 stock over the last 25 years has been Monster Beverage Corp. Yes, really. The article reports the annualized return as 37.1%. Those are monstrous returns.

And now… The Rest of the Story.

The article doesn’t mention that on January 1, 1998, a share of Monster Beverage Corp stock was valued at south of two bucks (unadjusted for stock splits). There was a lot of room for growth. By the time May 1998 (think the Seinfeld finale) rolled around, the stock had doubled in value. The stock even trebled prior to Halloween that year (think Baby One More Time #FreeBritney). Halloween is a great time of year for monsters.

“Two-Buck Chuck” stocks (or in this case upchuck, because, again, yuck) aren’t in the S&P 500. Monster wasn’t admitted to the S&P 500 until June 2012, displacing Sara Lee in a move clearly intended to placate sugar beet growers. (No, not really.) Since it joined the S&P 500, Monster’s return is closer to (a very respectable, but less stratospheric) 15%.

What’s my point?

The article implies Monster has been in the S&P 500 for the whole period in question. Nope. If you wanted Monster in your portfolio when it was really providing scary good returns, you needed to be more broadly diversified than just the S&P 500. Don’t get me wrong, the S&P 500 stocks are a core investment of nearly any portfolio (your mileage may vary depending on your unique situation), but those stocks only represent about one-tenth of the approximately 5,000 publicly traded companies in the U.S. To get the next Monster in your portfolio, you’ll need to incorporate small- and mid-cap stocks as well.

We select investments and build portfolios with broad diversification in mind because we know the next Monster is out there, but we make no claims to knowing specifically where to find it. The S&P 500 has done a great job of providing more predictable returns over long-enough time periods. If you want to find a Monster, look under your bed, take the cash out from under your mattress, and consider investing a prudent portion of your portfolio in smaller companies as well.

Kyle Swan, CFP®

Securities and advisory services offered through Mutual of Omaha Investor Services, Inc. Member FINRA/SIPC. Mutual of Omaha Advisors is a division of Mutual of Omaha Insurance Company.

The Standard & Poor’s 500 Index (S&P 500) is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. Investment involves risks, including possible loss of principal. Past performance does not guarantee future results. It is not possible to directly invest in an index.

Stocks fluctuate in response to the activities of individual companies and general market conditions, domestically and abroad. Investments in mid and small-cap stocks typically have higher risk characteristics than large cap stocks and may be subject to greater price fluctuations than large-cap stocks.


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