Here are the top 30 stocks in the S&P 500 over the past 30 years…
These companies have delivered unfathomable returns to their shareholders.
They have also delivered many periods of excruciating pain for anyone able to stick with them.
When thinking about big winners in the stock market, excruciating pain probably isn’t the first thing that comes to mind. We tend to focus instead on the final outcome (eye-popping long-term gains), ignoring the tremendous fortitude (holding through large drawdowns) and faith (believing it will come back) required to achieve that outcome.
Take the #1 stock in the past 30 years (Amazon) as an example…
From its peak in December 1999 Amazon declined over 94% until it bottomed in September 2001.
That means if you had $100,000 invested in Amazon in December 1999 it would have shrunk to $5,570 in September 2001. And you wouldn’t have recouped your loss until November 2009.
How many investors would have held on throughout such a decline?
What about Apple (#15 on the list)?
I’m glad you asked.
In the last 30 years, Apple suffered two agonizing declines, including an 82% drawdown which lasted over 8 years (April 1991 to September 1999).
It should be clear from these examples that large drawdowns are an inevitable part of achieving high returns. If you haven’t yet experienced a gut-wrenching decline, then you probably haven’t owned something that has appreciated 10x, 20x or more. Or you simply haven’t been investing for that long.
I know what you’re thinking. There has to be a better way. You want the next Apple or Amazon but without the periods of pain.
Yes, we all do. The problem: in trying to hedge or time your exposure to the next big winners, you will likely miss out on a substantial portion of the gains. Or your emotions will cause you to sell at precisely the worst time (only after a large drawdown).
To reap the reward, pain is inevitable. Which is why the ultimate superpower in investing is being good at suffering (see rule #13 here).
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Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For our full disclosures, click here.