Markets
A Decade Later: What $1K Invested in These Stocks is Worth Today
On October 11, 2007, the Dow Jones Industrial Average hit a new high of 14,198.10 in intraday trading.
At the time, it would have been impossible to know, but such a peak wouldn’t again be matched until 2013, almost six years later. Investors were in for a roller coaster, and a slow and unpredictable recovery – how would their portfolios fare?
Investing at the Market Peak
Hypothetically, let’s say that you bought $1,000 of shares in some of America’s best-known companies, right during these pre-crisis highs in October 2007.
Today’s chart from HowMuch.net shows how you would have fared based on share price alone, not including the re-investment of dividends. Each blue dot below shows the $1,000 investment, and each pink circle represents the value of that investment today.
If you’d had invested in Netflix around the time company launched its streaming service in the United States, you would have brought in 50X your initial investment.
Meanwhile, Amazon shares jumped over 10X in value, and even “boring” blue chip companies like FedEx or McDonald’s at least doubled in value. The only company worth less (on the above list) is GE, though it’s worth noting that they would have also paid a dividend over this timeframe.
Common Wisdom?
Historically speaking, over long-term windows, the stock market has almost always increased in value. But for people that bought in October 2007, it would have felt like the world was ending and that a recovery was nearly impossible.
While it can certainly be argued that asset prices were inflated through QE, record-low interest rates, and other controversial central bank tactics from the crisis onwards, in hindsight it is also clear that a portfolio formed at the 2007 peak would have turned out alright today.
Of course, I think we all would agree that it would have been a lot nicer to invest at rock-bottom prices in 2009. However, it’s nice to know that holding stocks through the crisis ultimately paid off for those that had the patience to do so.
As the current market gets more and more expensive, this may be something worth keeping in mind.
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Markets
Visualizing the Recent Explosion in Lumber Prices
Lumber prices in the U.S. continue to break records as pressure from both the supply and demand sides of the market collide.
Visualizing the Recent Explosion in Lumber Prices
Lumber is an important commodity used in construction, and refers to wood that has been processed into beams or planks.
Fluctuations in its price, which is typically quoted in USD/1,000 board feet (bd ft), can significantly affect the housing industry and in turn, influence the broader U.S. economy.
To understand the impact that lumber prices can have, we’ve visualized the number of homes that can be built with $50,000 worth of lumber, one year apart.
A Story of Supply and Demand
Before discussing the infographic above, it’s important to understand the market’s current environment.
In just one year, the price of lumber has increased 377%—reaching a record high of $1,635 per 1,000 bd ft. For context, lumber has historically fluctuated between $200 to $400.
To understand what’s driving lumber prices to new heights, let’s look at two economic elements: supply and demand.
Shortened Supply
U.S. lumber supplies came under pressure in April 2017, when the Trump administration raised tariffs on Canadian lumber. Since then, lumber imports have fallen and prices have experienced significant volatility.
After a brief stint above $600 in April 2018, lumber quickly tumbled down to sub $250 levels, causing a number of sawmills to shut down. The resulting decreases in production capacity (supply) were estimated to be around 3 billion board feet.
Once COVID-19 emerged, labor shortages cut production even further, making the lumber market incredibly sensitive to demand shocks. The U.S. government has since reduced its tariffs on Canadian lumber, but these measures appear to be an example of too little, too late.
Pent-up Demand
Against expectations, COVID-19 has led to a significant boom in housing markets, greatly increasing the need for lumber.
Lockdowns in early 2020 delayed many home purchases until later in the year, while increased savings rates during the pandemic meant Americans had more cash on hand. The demand for homes was further amplified by record-low mortgage rates across the country.
Existing homeowners needed lumber too, as many Americans suddenly found themselves requiring upgrades and renovations to accommodate their new stay-at-home lifestyles.
How Many Homes Can You Build With $50K of Lumber?
To see how burgeoning lumber prices are impacting the U.S. housing market, we’ve calculated the number of single family homes that could be built with $50,000 worth of lumber. First, we established the following parameters:
- Lumber requirements: 6.3 board feet (bd ft) per square foot (sq ft)
- Median single family house size: 2,301 sq ft
- Total lumber required per single family house: 14,496 bd ft
Based on these parameters, here’s how many single family homes can be built with $50,000 worth of lumber:
| Date* | Lumber Price | Total Lumber Purchased | Total Homes Built |
|---|---|---|---|
| 2021-05-05 | $1,635 per 1,000 bd ft | 30,581 bd ft | 2.11 |
| 2020-05-04 | $343 per 1,000 bd ft | 145,773 bd ft | 10.05 |
| 2015-05-01 | $234 per 1,000 bd ft | 213,675 bd ft | 14.74 |
| 2010-05-01 | $270 per 1,000 bd ft | 185,185 bd ft | 12.77 |
*Exact matching dates were not available for past years.
Source: Insider
As lumber prices continue to set record highs, the National Association of Home Builders (NAHB) has reported that the cost to build a single family home has increased by $36,000. Most of this cost can be passed down to the consumer, but extremely tight supplies mean homebuilders are unable to start more projects.
The Clock is Ticking
Despite their best efforts to increase output, it’s likely that sawmills across the U.S. will continue playing catch-up in 2021.
“There was a great fear among sawmills to prepare for a downturn. When home buying surged, they could not open up capacity quickly enough.”
– Lawrence Yun, National Association of Realtors
Analysts are now warning that lumber prices could reach a flashpoint, where affordability becomes so limited that demand suddenly falls off. This has led the NAHB to ask the Biden administration for a temporary pause on Canadian lumber tariffs, which currently sit at 9%.
U.S. tariffs on Canadian lumber were first introduced in 1982, and represent one of the longest lasting trade wars between the two nations. The U.S. is currently appealing a World Trade Organization (WTO) ruling that states its 2017 tariff hike was a breach of global trading rules.
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