Summary
- It took INTC over 17 years to regain 70% of its all-time-high (ATH) price
- Intel's stock price has not reached its ATH price since the 2000 dotcom bubble
- If buying INTC at an all time high, it would have taken an investor up to 18 years to break even with combination of principal gains and dividend pays
- Losses of buying the top could have been lowered by averaging down.
Intel, co-founded in 1968, to this day remains one of world's most recognizable semiconductor chip brands. The accelerated adoption of personal computers along with the rapid rise of global Internet in the late 1980s and 1990s helped Intel gaining popularity and extend its brand name recognition at an increasing rate.
This is evident in the exponentially increasing stock price of INTC from 1990 to 2000, where stock price of Intel increase by roughly 38%/year, subsequently increasing by another ~180% in 9 months from January 2000 to September 2000.
Intel stock price INTC reached its its all-time-high (ATH) of roughly $75 in August 31, 2000 at the peak of the dotcom bubble before coming crashing down. Within the next 14 days following reaching its ATH, Intel dropped by 20%, and no more than a week later by another 16 percent totalling a -36% decline from its ATH in 22 days. The bottom was not realized until over 2 years later, the stock closing at -82% of its ATH value.
Along the way down over the course of this 2 years, there where a few impressive bear market rallies, including an spectacular 85% rally from a local low before dropping an additional 6% lower.
While it may have looked cheap after the stock price falling down 36% from its peak, it took INTC over 17 years to reach back to 80% and 64% of its ATH price. Not only that, but also despite its decades long historical dominance in the semiconductor space, Intel has never not reached back to its ATH value as of this writing.
With the benefit of hindsight, it's obvious that an investment during the peak of the dotcom bubble in INTC would have not faired well. Not only that, but it would not have been a good investment to buy INTC even after a 35% drop from its peak price. There is some good news, however, since Intel at least pays dividends which would have lessened the blow to those who may have bought the stock at its peak.
Navigating the FOMO
Fear of missing out (FOMO), coupled with lack of foresight, can make it easy to be dragged into a mania and buy a stock at its peak resulting in impressive losses. It is only with the benefit of hindsight that we can say that one could have lost 80% of their principal within two years after buying INTC.
Consider how dollar cost averaging and dividend reinvestments may have helped in lowering the losses in this case and this time frame. Specifically, consider three very simple main scenarios, each involving a total investment of $1000 into INTC starting the peak of the INTC closing value. The difference between each case is how the total investment amount is distributed in time:
- Case 1: (Base case) Buying $1000 worth at the peak
- Case 2: Buying $500 worth at the peak, and second $500 a month later
- Case 3: Buying $333 worth at the peak, and two $333 each spaced 1 month apart.
For each case, we consider both re-investing and not re-investing the paid dividends.
Case 1
Graph below shows the profit-history of profits for Case 1. The top graph shows the profit-history for both re-investing and not re-investing the paid dividends back into the stock. The lower graph highlights the difference between the two scenarios.
In this scenario, the principal would be negative for roughly 18 years. At it's lowest, the investment would have lost ~82% of its principal, and at its peak briefly reached a maximum profit of 49% roughly 22 years later (i.e. maximum of +2.2%/year profit). Note that without dividends this investment would have never broken even. Had the investment been held today (as of this writing), it would be -13% down.
- dividend not reinvested: -23% today
- Dividend reinvested: -10% today
Case 2
Graph below shows the time-history of the investment for Case 2 since its initial purchase time. In this scenario, 1/2 the investment was done at ATH, while the remaining investment was done a month later.
The investment would have performed significantly better than the first. Currently (as of this writing) it would have had a profit of 25%. At its lowest, the investment would have resulted in a loss of 74% of its principal, and broken even ~16 years later, reaching a peak of 113 profit twenty-two years later.
Case 3
In Case 3, the investment was done over the course of 3 months, starting with 1/3 of the investment at all-time-high, 1/3 a month later, and the remaining 1/3 a month after the second. Graph below shows the time-history of the investment normalized against the total investment.
In this scenario, the current profit level would be 30% of the total investment. The lows are similar to Case 2, almost visually indistinguishable, reaching a minimum of -73%, with a maximum of 123%.
Case Summary
Table below summarizes the profit level for the three scenarios. For this considered case, the risks of buying the top was able to be mitigated by spreading the investment over a longer period.
| Case | Div Reinvested | Minimum | Mean | Maximum | 2022-07-17 (%) |
|---|---|---|---|---|---|
| Case 1 | N | -82% | -50% | +12% | -26% |
| Y | -82% | -44% | +49% | -13% | |
| Case 2 | N | -74% | -29% | +60% | +6% |
| Y | -74% | -20% | +113% | +25% | |
| Case 3 | N | -73% | -17% | +67% | +11% |
| Y | -73% | -17% | +122% | +30% |
Comparison with S&P
Case 3B had the least worse performance, achieving a maximum of 122% yield (including dividends) if the investment was held for 20 years. This translates to a ~6%/year profit by holding the INTC investment. While this may seem reasonable, there are two points to consider:
- Realizing the peak profit level required holding the investment at a loss for over a decade. There was an opportunity cost associated with holding that investment.
- Unless realized, the peak profit could have been reduced down to 1%/year, which is lower than the official inflation rate.
Naturally, one may want to compare the same investment strategy with S&P500. Here it is compared to SPY, an S&P500 exchange-traded fund (ETF) that existed in 2000. Figure below shows the history of the relative difference between SPY and INTC, showing an average of 85% better relative performance of SPY compared to INTC for the Case 3B investment strategy.
