The Ultimate Superpower in Investing

By Charlie Bilello

07 Feb 2022


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These are the top 30 stocks in the S&P 500 over the past 30 years…

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What stands out? The unfathomable cumulative returns, a product of time and the magic of compounding.

What’s missing? The many periods of excruciating pain that anyone invested in these companies would have experienced.

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) required to achieve that outcome.

The top-performing company, Monster Beverage ($MNST), is the perfect example.

It gained over 260,000% over the last 30 years. But in order to reap those incredible returns an investor would have had sit through an 88% drawdown that lasted 6 years, along with a pair of 50+% drawdowns that spanned multiple years as well.

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Everyone’s familiar with the Netflix ($NFLX) of today, the company with over 220 million subscribers. But that didn’t happen over night.

The “death” of Netflix was predicted many times, first in late 2002, not long after its IPO. Walmart was entering the DVD-by-mail business, and who could ever compete with the all-powerful Wal-Mart?

In 2006, its “death” was again predicted, when both Apple and Amazon announced plans to start movie-downloading services. Surely Netflix could not survive such a threat.

But survive they did, only to find new doubters after announcing their plans for streaming video. Netflix shares dropped 12% by mid-January of 2007 and the analyst downgrades ensued. The streaming video service would cost Netflix an estimated $40 million in 2007, a sum that was deemed “too much.”

At the time, Netflix’s biggest threat was said to come from (don’t laugh) Blockbuster. Blockbuster’s online rental service was “taking off,” adding over 700,000 subscribers in the prior 2 months.

Blockbuster’s CEO had this to say about their closest competitor: “We have everything that Netflix has, plus the immediate gratification of never having to wait for a movie.”

What happened next?

Just 3 years later, Blockbuster would file for bankruptcy protection while Netflix stock has advanced 11,000% since their streaming video service was announced in January 2007.

Since its IPO in 2002, Netflix is up over 39,000%, an annualized return of over 35%.

Netflix’s rapid ascent in recent years seems easy and inevitable in hindsight, but in truth it was anything but.

There were many struggles along the way (see the pair of 75% declines below), and many more doubters than believers.

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Everyone knows the Amazon ($AMZN) of today, with over $470 billion in revenue and 200 million global prime members. But few likely recall the struggles of its past.

Back in 1997, the year Amazon went public, fortune published an article with the following headline: “Why Barnes & Noble May Crush Amazon.”

The author argued… “Anything Amazon.com can do on the Internet, so, too, can Barnes & Noble. Once you look beyond the Website you begin to see why, in this battle at least, the odds favor the $3-billion-a-year Goliath [Barnes & Noble].”

The rest, of course is history, but not before the dot-com crash and a 94% drawdown for Amazon shareholders. It would take nearly 10 years (December 1999 to November 2009) for Amazon’s stock to hit a new high again.

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That means if you had $10,000 invested in Amazon in December 1999 it would have shrunk to just $557 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?

Very few.


What about the almighty Apple ($AAPL), the largest and most profitable company in the world? Surely its rise to prominence was an easy one, right?

Not exactly.

Apple’s revenue fell more than 50% from 1995 to 2001, and was all but dead in the eyes of the investing public.

In the last 30 years, Apple has suffered two agonizing declines, including an 82% drawdown which lasted over 8 years (April 1991 to September 1999). Even after the release of the revolutionary iPhone in June 2007, Apple had a drawdown of more than 60% before bottoming in early 2009.

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All of the top 30 stocks over the past 30 years have had the same gut-wrenching declines at one point or another, proving that large drawdowns are an inevitable part of achieving high returns.

I know what you’re thinking. There has to be a better way. You want to own the next Netflix, Amazon, or Apple without any of the pain.

We all do. The only problem: in trying to time or hedge your exposure, you will likely miss out on a substantial portion of the gains. Or your emotions will lead you to sell at precisely the worst time, only after a large drawdown.

To reap the biggest rewards you must be able to take the painful hits and keep moving forward. Which is why the ultimate superpower in investing is being good at suffering.

Related Post:

The Price of Admission in Stocks

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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.

About the author

Charlie Bilello

Charlie is the founder and CEO of Compound Capital Advisors.

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