How to Turn A Doomed Market into Booming Share Prices

Last Friday, the S&P 500 – a US market tracker – fell pass the 5% mark. The day before, a CNN news report started to bet on the idea that the share market had “plunged”, and even commented that October was shaping up to be a scary month. Furthermore, the newswire described that investors were left trying to catch their breath from all the turbulence in the share market.

Now, that just sounds horrible, doesn’t it? But let’s try to put a Foolish context to this.

We may have heard this story before

Recently, I came across a news segment which aired on 20 May 2010 on CNBC (an American business news channel). The guest was Nouriel Roubini, who is also known as “Dr. Doom”. Mr. Roubini was not a happy camper that day, speaking about the gloomy economic climate, and suggesting that double dip recession may be in the horizon.

However, it was not his gloomy comments that interested me.

As the famed Dr. Doom spoke of the risk of a 20% correction, I noticed the moving ticker tape below him displaying the share prices of various companies on that fateful day. You see, I happened to recognize four of them, and the quartet are Apple Inc. (NASDAQ:AAPL), Gilead Sciences, Inc. (NASDAQ: GILD), eBay Inc (NASDAQ:EBAY), and Costco Wholesale Corporation (NASDAQ:COST).

In the table below, I have added the share price on the close on the day of the newscast (20 May 2010) and the share prices on last Friday (10 October 2014) to show how it has changed over the past four years plus.

Company Share Price on 20 May 2010 Share Price on 10 October 2014 Change in Share Price
Apple $34.73 $100.73 190%
Gilead Sciences $18.53 $103.73 460%
eBay Inc $21.15 $51.86 145%
Costco $57.30 $128.90 125%

Source: CNBC; Share price of Apple and Gilead was adjusted for share split

When we shifted our view to four years ahead, the average returns of the quartet came to a handsome 230%. For the S&P 500, it closed at 1071.59 on that gloomy newcast day, and as of last Friday, the index was up close 78%.

On the local front, share price of companies such as Boustead Singapore Limited (SGX:F9D), and MTQ Corporation Limited (SGX:M05) rose by 132% and 81% respectively over that timeframe of 20 May 2010 to 10 October 2010.

The better numbers to focus on

Instead of the gloomy news in 2010, if Foolish investors kept their collective eyes on the development of the underlying business — a different conclusion may have been reached. For instance, here’s how the revenue, and earnings-per-share (EPS) for Apple has changed over the courses of the four years.

Financial Year Revenue (in US$ billion) % year on year change in revenue EPS (in US$) % year on year change in EPs
FY2010 $65.2 $2.16
FY2011 $108.2 66% $3.95 83%
FY2012 $156.5 45% $6.31 59%
FY2013 $170.9 9% $5.68 -10%

Source: Morningstar

In summary, during these four years, Apple’s revenue rose a stunning 162%, and its EPS had followed suit. Following this business performance, the share price of the popular maker of iPhones and iPads flourished, also rose by 190%. With business results like that, these numbers might be the kind of figures that Foolish investors should be keeping an eye on.

Foolish Take away

With the four fine examples above, I hope that Foolish readers will be convinced to look past the fog of doom and gloom, and instead look at at how the companies that you own perform over time. Said another way, instead of looking over the next four days or the four months, try looking four years out. Or if you want, try four decades ahead.

The reason to looking past the fog of doom and gloom is clear. If the underlying businesses can continue to perform, holding on or even adding to your stake might just be the better thing to focus on. After all, that focus today might bring booming share prices in the years to come.

And, it can be done by sailing past the short term gloom.