Alphabet shareholders who bought right after the 2008 financial crisis profited enormously.
Tech stocks have experienced a massive sell-off in recent months, and even mega-cap stocks such as Alphabet (GOOGL -0.28%) (GOOG -0.35%) have suffered. Since November, Alphabet stock has lost almost 30% of its value.
The last time Alphabet experienced a sell-off this massive was during the 2008-09 financial crisis. Its subsequent recovery and exponential growth since then offer lessons on how industry leaders can not only recover from such crises but also drive outsized returns over time.
Alphabet's stock growth over the past 13 years
Since the beginning of 2009, Alphabet stock has risen by almost 14-fold. It has served its investors well, as the S&P 500 drove a total return of just under 450% during that same timeframe. At a split-adjusted $154 per share at the start of 2009, that would allow for a purchase of 32 shares for $4,928. Today, those 32 shares would carry a value of just over $68,000.
That growth is even after the stock price drop in 2022 that lowered its market cap to a still stellar $1.4 trillion. What the growth does not include is the upcoming 20-for-1 stock split scheduled for July 15.
During this time, Alphabet went through the April 2014 split when shares split into the A-class GOOGL shares, which include voting rights, and the C-class GOOG shares that do not allow for voting. This type of split led to some controversy at the time, but the stock remained on an upward trajectory.
The company in 2009
In 2009, the company was still known as Google, Inc., and was mostly known for its dominant search engine. Also in 2009, a sell-off in stocks was hammering Google's stock price. Amid a near-collapse of the financial system in 2008, Google stock ended the year at just under $154 per share. It had started 2008 at a split-adjusted price of $346 per share, and had reached a high of almost $374 per share in November 2007. After falling below $130 per share briefly in November 2008, it staged a modest recovery to $154 per share by January 2009. But even after that recovery, the stock dropped by 59% during the year.
Alphabet spent almost all of 2009 in recovery mode. It would end the year at $312 per share, nearly recovering the losses of 2008. Nonetheless, it was 2012 before Alphabet stock surpassed the 2007 high, a total recovery time of almost five years.
Lessons for today
That lengthy recovery provides lessons for both Alphabet stockholders and tech investors in general. Admittedly, not every growth stock will rise 14-fold over 13 years or become the Alphabet in its industry. A few may even disappear altogether. Hence it makes sense to diversify, as even the best stock pickers will probably make some missteps.
Moreover, even shareholders who chose the better-performing stocks of the future might endure long periods of losses. Much like Alphabet investors who bought in late 2007, those who purchased stocks such as Teladoc Health or Shopify at the top may have to endure years of waiting to earn a positive return on their investments.
Nonetheless, if the stock leads an emerging industry, Alphabet's history points to the potential for not only a recovery but also massive growth. Additionally, Alphabet's history suggests more significant returns for investors who bought the communication stock closer to the bottom. Hence, with Alphabet and many industry-leading tech stocks selling for huge discounts, investors with a long-term time horizon could benefit from an opportunity that may never come again.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Will Healy has positions in Shopify. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Shopify, and Teladoc Health. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.
