Coca-Cola, IBM, Polaroid. In the early 1970s, these were businesses investors trusted enough to buy and put away for good. Their shares were expensive. The promise was that years of growth would make the price look sensible.
It is a tempting thought when you have $200 to invest in a company you admire. Why worry about paying extra for a business built to last?
Then came the 1973–74 bear market. The Nifty Fifty became a warning about paying too much. Yet a study following the stocks into 1998 reached a less damning verdict. The stock list, holding period and portfolio rules help explain why.
A company you could keep forever
The Nifty Fifty was an informal nickname for favored US growth stocks, with no single official list. Large institutional investors helped make them popular. This lesson follows Morgan Guaranty Trust's list, the sample used in Jeremy Siegel's 1998 study. It included all three companies above.
A one-decision stock meant a share you supposedly needed to decide about only once: buy it and never sell. Find a business that keeps growing, and let it do the work while you get on with your life.
But confidence in a business could become indifference to its price. Knowing a restaurant serves excellent food does not tell you whether the bill is reasonable.
What the price demanded
Siegel reports a December 1972 average P/E of 41.9 for his sample, against 18.9 for the S&P 500. The P/E ratio compares a share's price with its annual earnings per share.
The ratios are calculated differently: an average of company P/Es versus an index P/E. They show the scale of the premium, without making 18.9 the right price for every stock.
For a price experiment, suppose a share earns $1 a year and those earnings stay fixed. A P/E falling from 41.9 to 18.9 takes its price from $41.90 to $18.90. This is multiple compression: investors pay less for each dollar of earnings.
A $200 stake would shrink to about $90. That is the loss in our experiment, not a measured Nifty Fifty return.
Growth can soften the hit. If earnings doubled to $2, a P/E of 18.9 would give a price of $37.80. That is still below the original $41.90. Even a growing business can leave you with a lower share price.
The bear market tested the promise
During the 1973–74 sell-off, inflation squeezed the economy. An oil embargo began in October 1973, and the US economy entered recession that November. The favored stocks fell too. A respected name offered no floor under the share price.
The S&P 500 lost 48.2% from its January 11, 1973 closing peak to its October 3, 1974 closing low, according to S&P Dow Jones Indices. That measures the broad market's price fall, excluding dividends and any inflation adjustment.
An investor paying tuition in 1974 faced the deadline problem from 1929: shares had to fund the bill at the price available then. The one-decision promise could not remove that constraint.
Siegel measured returns long past that deadline. His endpoint sits nearly a quarter-century beyond the bear market.
The longer view changes the verdict
Siegel tested two portfolios that began with equal amounts in every stock. One used monthly rebalancing to bring holdings back to equal weights. The other let those weights drift as prices changed. Same starting companies, different ways of owning them.
Reported annualized total returns for Morgan Guaranty's list, December 1972–August 31, 1998, in US dollars before inflation, including dividends:
| Portfolio rule | Annualized return | What differs |
|---|---|---|
| Rebalance monthly | 12.5% | Reset equal weights |
| No rebalancing | 12.2% | Let weights drift |
An annualized return expresses the whole period as one compound yearly rate, with the rough years hidden inside it. These are study results; your own account would also reflect taxes, trading costs and withdrawals.
Siegel found that the group nearly matched the S&P 500 over that window. Calling the whole group a long-run disaster misses that result.
Monthly rebalancing required repeated trades. Even this test of the one-decision stocks involved another decision about how to hold them.
Coca-Cola was among the strong performers in Siegel's window; Polaroid had a negative total return. Owning the whole list and picking a few favorite names were different bets. Hindsight makes the winners easy to name. It does not tell us which ones a buyer could have identified in 1972.
What this history lets you conclude
Yes, a great company can be a bad investment at the price you pay and over the period you hold it. This expensive group also produced substantial returns over decades under Siegel's rules. One result does not cancel the other.
For your $200 decision, an economic moat, a durable advantage over competitors, can help explain why a business might keep earning. It cannot settle what those earnings are worth at any purchase price.
A useful return claim needs four labels beside it:
- List: the companies actually included.
- Dates: when the investment starts and the measurement ends.
- Dividends: whether payments to shareholders count.
- Portfolio rules: the starting weights, rebalancing and treatment of buyouts.
A cash buyout forces another choice: leave the proceeds in cash or invest them elsewhere. That choice can change the return even though the original stock list is unchanged.
If one label is missing, the verdict is incomplete. “They were great companies” does not fill the gap. You can use the same check on claims about funds, without picking individual stocks.
In Black Monday, 1987, the test shifts from the price of quality to the workings of protection: a selling rule still needs someone willing to buy.
In short
- Business quality does not make the purchase price irrelevant.
- Profits can rise while the share price falls.
- A return claim needs its stock list, dates, dividend treatment and portfolio rules.
- A strong long-run group result cannot justify every stock, purchase price or holding period.