One might think that approximately half of the shares of the S&P 500 They perform better than average in a given year. A balanced distribution between top- and bottom-performing market players would be expected.
The reality is that the exact percentage goes up and down in real time. And generally speaking, only about 20% of S&P 500 constituents beat the market average. That’s why it’s so important to find a winner.
According to MacroTrends, the five best stocks of the last decade are NVIDIA(NASDAQ: NVDA), amd(NASDAQ:AMD), Camtek(NASDAQ: CAMT), just isaac(NYSE: FICO)and tesla(NASDAQ:TSLA). These stocks have compound annual growth rates of between 40% and 75%. On the low end, a $10,000 investment in Tesla 10 years ago is worth $290,000 today. At the high end, a $10,000 investment in Nvidia back then is worth almost $2.7 million now.
A key component of The Motley Fool’s investment philosophy is to “let the winners in your portfolio keep winning.” There are relatively few winners, and if you have a winner in your portfolio and sell it prematurely, you have about an 80% chance of replacing it with a loser.
Sounds simple, right? Just buy good stocks and stick with the big winners. But in reality, Nvidia, AMD, Camtek, Fair Isaac, and Tesla all share something surprising that made it extremely difficult to maintain them over the last decade.
Over the past 10 years, these five stocks have lost 50% or more in value at least once. Tesla retreated more than 70% from its peak over the past 10 years. And even the mighty Nvidia fell 66% in 2022.
In fact, Nvidia has fallen 50% or more on two separate occasions over the last decade. Tesla has done it three times. AMD too, if we round the numbers slightly, and is currently 40% below the highs it reached earlier this year.
NVDA data by YCharts.
When a stock falls this low, there will always be negative headlines that stoke long-term fears. And these bearish cases will scare investors into believing that the time has come to sell.
On the one hand, it’s easy to empathize with someone who sold. Imagine having a position worth hundreds of thousands of dollars that drops 50%. It would turn your stomach to see so many profits disappear. But on the other hand, selling any of these five stocks after a 50% pullback was ultimately a wrong move, causing sellers to miss out on massive gains.
The great investor Charlie Munger said: “If you are not willing to react with equanimity to a 50% drop in market price two or three times a century, you are not fit to be a common shareholder and you deserve the mediocre result you get.” “They will compare us to people who have the temperament, who may be more philosophical about these market fluctuations.”
Munger was never one to mince his words. I may sound harsh here, but his advice is nonetheless wise for several reasons.
First, investors must accept that a drop of 50% or more will occur, and that it could happen frequently. If you want to make money investing, this is part of the deal.
Second, a drop of 50% or more does not actually indicate to investors anything about when to sell or when to buy. As we’ve seen, the five best stocks you could have bought 10 years ago fell at least 50% at least once. Those drops were not sales opportunities.
Likewise, there are countless other stocks not mentioned here that have fallen 50% or more and never recovered. Munger mentioned equanimity, and that’s what’s needed when you realize that stocks can recover or fall further after dropping 50%. The bottom line is that investors should respond with indifference to price, which brings me to my third point: Investors should have an investment thesis when purchasing stocks.
Your thesis should articulate the conditions necessary to generate sustained value for shareholders. Then compare a company’s results with the thesis. If things are going as expected, it is usually a good idea to continue holding, as you will have a solid foundation for when the stock market becomes turbulent.
In short, investors could see their portfolio cut in half even if they have picked the best possible stocks. But volatility is part of the deal. If fear starts to surface, investors should dust off their investment thesis to see if they should continue holding the stock in their portfolio.
Have you ever felt like you missed the boat when buying the hottest stocks? Then you’ll want to hear this.
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NVIDIA:If you invested $1,000 when we doubled down in 2009,you would have $363,593!*
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netflix: If you invested $1,000 when we doubled down in 2004, you would have $502,684!*
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*Stock Advisor returns from December 23, 2024
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Advanced Micro Devices, Nvidia and Tesla. The Motley Fool recommends Fair Isaac. The Motley Fool has a disclosure policy.
The surprising thing the five best stocks of the last decade have in common was originally published by The Motley Fool
