Keane is tops; most firms bring bangs for investor bucks

By Charles Stein, Globe Staff

t's been a great decade for investing.

Over the past 10 years, the life of the Globe 100, the Standard & Poor's 500 Index has had an annual average return of 18.9 percent. Put another way, if you had invested $1 in an index fund on May 1, 1988, by May 1, 1998, you would have had $5.50.

The stock prices of most Massachusetts companies haven't done that well. But a few firms have managed to beat the index - sometimes by a very wide margin.

Consider the performance of Keane Inc., the best performing stock of the decade. Keane, a Boston software company, had an annual average return of 56.83 percent. One dollar invested in Keane back then would be worth about $90 today.

You could have done almost as well by putting your money into EMC Corp., a Hopkinton company that makes computer storage equipment. One dollar invested in EMC would now be worth about $80. Small wonder that EMC chairman Richard Egan regularly makes the list of the wealthiest Americans.

There is no obvious link among the companies whose stock prices have exploded: They include computer companies, biotechnology companies, financial services firms, and consumer products giants. But each in its own way has managed to transform itself to take advantage of new or growing markets.

For years Keane basically rented out computer programmers to other companies. Over the past few years, however, the company has managed to move up the software food chain by selling higher value services, including fixes for the Year 2000 problem. This year Keane is expected to do $280 million worth of Year 2000 business, up from only $17 million two years ago.

EMC practically invented the computer storage business. Ten years ago, storage was an afterthought. If the computer industry were a house, storage would have been a small shed in the back yard. Today it is more like the family room, a part of the house no one could do without. ''There are people who would say storage is becoming more important than the computer,'' said Mark Fredrickson, an EMC spokesman. The storage business has been very, very good to EMC. Ten years ago the firm had sales of $123 million; this year sales will top $3 billion.

''Ten years ago we were a regional bank that had become a player in the pension and mutual fund business,'' said Marshall Carter, chief executive of State Street Corp. Today, State Street, based in Boston, is a player in pensions, mutual funds, money management, and foreign exchange. The company has doubled its staff to 14,000 while quadrupling the business it does. Wall Street has noticed. A dollar invested in State Street 10 years ago would be worth $14 today.

Chairman Ray Stata likes to describe the transformation of Analog Devices this way: ''All we did was change everything we did and how we did it.''

Analog, in the early 1990s, was a struggling Norwood semiconductor company heavily dependent on military business. Now it is a thriving semiconductor company with a heavy emphasis on communications. Military work accounts for just over 10 percent of sales. A dollar invested in Analog 10 years ago would now be worth $8.35.

But the vast majority of companies have failed to keep pace with the index. The big banks, BankBoston Corp. and Fleet Financial Group, did well but still came up short. A dollar invested in each of those banks 10 years ago would be worth $4.70 and $3.62 today, respectively, compared to $5.50 for the index. Bank stocks have done spectacularly over the past five years, but they sank dramatically in the early 1990s, when the real estate market in New England collapsed.

Utility stocks have been unexciting, just what you'd expect from a regulated industry. A dollar invested in Boston Edison Co. and another in New England Electric System 10 years ago would now be worth $2.62 and $2.12, respectively.

Shoe stocks have been even more flat-footed. A dollar invested in either Reebok International or Stride Rite Corp. 10 years ago would now be worth about $2. Both companies had great runs during the course of the decade, but both have been tripped up more recently by changing fashion trends.

The numbers for Polaroid Corp. are more dismal. A dollar invested in Polaroid would be worth $1.40 today. You would have made more in a money-market fund than by owning Polaroid stock for the past 10 years. Ouch.

And there are the minicomputer companies, Data General and Digital Equipment Corp. Both have tried mightily to catch the technology wave in the 1990s, but the results speak for themselves. A dollar invested in Data General would be worth 68 cents; a dollar invested in Digital would be worth 54 cents. Just be thankful you didn't have your 401(k) money in either of these stocks.

What's the lesson from all this? Unless you are an awfully smart or awfully lucky investor, you're probably better off buying an index fund and going to sleep for the next 10 years.