If you'd picked these stocks you could retire early

Wednesday 7 August, 2019

Article by Liam Dann, originally published by NZ Herald

What are the best and worst performing stocks in the decade since the market's post-GFC low?

And what do they tell us about the performance of industry sectors in this economy?

Pie Funds chief executive Mike Taylor has crunched the numbers, throwing up some stellar returns and some surprising failures since the market hit bottom in March 2009.

With hindsight the chances of picking the top performing stocks on the NZX and Wall Street over this time period would be "almost impossible", Taylor said.

But if you did, it's the stuff early retirements are made of.

Wall Street's best performer Netflix has delivered a 5891 per cent return since the market low-point in March 2009.

But that's dwarfed by the epic rise of kiwi dairy company a2 Milk.

Trading at just 9c in March 2009 and largely regarded as a "penny dreadful", it is now trading above $17 for a return of more than 16,200 per cent.

In other words $10,000 invested with A2 at the low point of the financial crisis would now be worth $1.63 million.

The other star performing New Zealand company over that period has been software firm Xero.

While it had now de-listed from the NZX and listed in Australia, those who stuck with it across both markets would be looking at returns in excess of 7000 per cent, Taylor said.

Picking winners at a very early stage was difficult and probably not the best strategy for the average investor, he said.

"For the average investor it is easier to wait until things have an established trend and then to join that trend," he said.

In 2009 Netflix was effectively just another online DVD rental service like Fatso in New Zealand.

Netflix accurately predicted the rise of online streaming TV but in the early days there were no guarantees that it would dominate the sector.

"At that time they were focused on destroying Blockbuster [video]," Taylor said.

"They came up with the streaming service we know now a few years later."

Other top performers in the US included online retailer Amazon (up nearly 2500 per cent) and a popular storage company called Extra Space Storage (up about 2600 per cent).

Extra Space had tapped into the trend for smaller living spaces driving demand for rented storage lockers.

"You've got to find something that's going to be disrupting a traditional business or something that's creating a whole new thing we've never heard of," Taylor said. "Then you've got to pick the winner."

"For example there's plenty of companies, like Amazon 10 or 15 years ago, that are selling things online, but only one has emerged as dominant number one player."

"You don't have to be the first person there but it's important to think about: what are these trends? How are they emerging? And can I join them on the ride?"

If you'd bought into Netflix even three or four years ago, you'd have done extremely well, Taylor said.

The worst performer on Wall Street had been American Airlines - which went bankrupt post-GFC.

The other poor performers were oil and energy companies like Apache (down 48 per cent) which had been hit by the huge slump in oil prices.

The worst New Zealand performer was also in that sector - NZ Refining (down 49 per cent).

"A decade ago there was a fear of peak oil. that we might even run out of oil," he said. "Since then we've had an oil crash with the rise of shale oil. So oil companies haven't done well."

The second worst was Sky TV (down 38 per cent) which had struggled with the rise of streaming TV platforms, like Netflix, Taylor said.

On an industry basis the statistics for the top performers tell an interesting story.

The healthcare sector has been the best performer in both New Zealand and America - likely benefiting from the aging population in both nations.

In that sector Ryman Healthcare has led the way on the NZX-50 (up 952 per cent) .

But otherwise the best performing sectors have reflected our respective economies better than many might expect.

In New Zealand the next four best performing sectors were food, tourism, real estate and software.

"We know that the number of visitors coming to New Zealand has increased every year, so an investment in Tourism Holdings was probably a good bet. And yes it has done well," Taylor said. "Then you look at the aging population and property and Ryman has done well."

In the US computer industry dominates with semiconductors, software and data processing the second third and fourth best performers respectively.