It’s Not Easy

It’s a topic we discussed in the last dividend letter, finding high-quality companies is the relatively easy part about investing. It’s mostly math.

Holding onto high-quality companies for the 1,000%+ returns is the extremely hard part. You have to constantly overcome your emotions and biases to stop yourself from selling too early after an initial gain. Or, as pointed out by Michael Batnick of The Irrelevant Investor, preventing yourself from selling during a panic-inducing drawdown.

Chart courtesy of The Irrelevant Investor. Click image to enlarge.

Chart courtesy of The Irrelevant Investor. Click image to enlarge.

A few things really stand out in this table.

  • Nine of the ten biggest winners were all cut in half. Granted, the S&P 500 was as well, but the point is that even the best stocks gave investors plenty of sleepless nights.
  • Even though these winners returned 23x what the S&P 500 did, only Apple and Priceline hit all-time highs more often.
  • The average standard deviation for these stocks was more than twice that of the S&P 500. No pain, no gain.
  • These stocks spent on average 34% of the time in “bear market territory.” That’s pretty wild. One out of every three days these stocks were at least 20% off their all-time high.

It’s our hindsight bias that tells us holding onto multi-baggers over many years and riding out the drawdowns is an easy endeavor. It’s not.


Looking For a Ten Bagger? (The Irrelevant Investor)