A sizeable investment in BHP Billiton Limited (ASX: BHP) might have seemed like a very good idea back in 2011.
By April of that year, the mining giant was once again trading near an all-time high price after recovering virtually all of its losses endured through the Global Financial Crisis. The stock had risen almost 150% since bottoming out in late 2008 and the iron ore price was hovering just below its peak of US$185 a tonne – a very attractive price for the miners themselves.
But that was as good as it would get for BHP Billiton. The miner's shares peaked around $46.60 (adjusted for the demerger of South32 Ltd (ASX: S32)) before falling around 30% by the end of 2011. They've fallen even further since.
Putting a dollar figure on it shows just how poor an investment BHP Billiton has been over the last four years. Had you purchased $10,000 worth of shares at the peak, your stake would now be worth just $5,014 (including adjustment to exclude South32). By my calculations, you would have also received AU $1,236 in dividends, giving a total of $6,250 – or a loss of 37.5%.
Had you instead invested your money in an index fund tracking the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), your $10,000 would now be worth roughly $12,385, based on a total 23.85% return, according to data provided by S&P Dow Jones Indices.
Given its severe under-performance in recent years, some investors might assume that now is the perfect time to buy BHP Billiton shares. Although the miner offers a monstrous dividend yield, I still don't believe that to be the case.
Like most other miners, BHP Billiton is suffering from crashing commodity prices, whereby its two primary commodities – iron ore and petroleum – are expected to continue falling in prices over the coming months, and even years. Until those commodities – or the shares themselves – hit rock bottom, buying shares in BHP Billiton seems like a dangerous way to spend your money.
