GM vs Philip Morris (Altria)

The following is a good example of how much durable high return on capital (ROC) and a consistently low stock price in the long run matters in investing. Let's say $ 10,000 was invested in the following two stocks back in 1957.*

Fifty years later, $ 10,000 invested in General Motors (GM) back then was well on its way to being worth nothing. 

In contrast, $ 10,000 invested in Philip Morris (now Altria: MO) back then was worth over $ 80,000,000 fifty years later.

Altria generated average annual returns of nearly 20% (including dividends reinvested) during that time frame.

So an asset that returns that much annually left to the magic of compounding turns $ 10,000 into more than $ 80,000,000 in 50 years.

A big part of the returns produced by Philip Morris/Altria came from dividends that were reinvested in a stock that was consistently inexpensive 
(this works the same way as share buybacks). The threat of legal liabilities and the fact that some investors won't touch a tobacco stock kept shares of Philip Morris/Altria mostly cheap for many years. 

That means more than a 6x increase in value has been an average decade for MO. That also happens to be pretty much what Altria produced this past decade. Odds are good that both Altria and the recently spun off Philip Morris International (PM) will continue to do just fine. 

They'll do even better if the stock consistently remains cheap. 

Those with a long-term investing horizon should consider that the next time they cheer for a near-term stock price increase.


* Dividends reinvested
I do not make investing recommendations as that comes down to individual circumstances. The site is for generalized informational and educational use and the opinions found here should not be treated as specific investment advice. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions.
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GM vs Philip Morris (Altria)
GM vs Philip Morris (Altria)
Reviewed by jembe
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Rating : 4.5