Even the Best Investments Hurt
In June of 2007, Apple released the iPhone. The following semester, my wife took a business class at Baylor and came away with the idea that Apple stock was a sound investment.
She told her dad to buy some shares.
He didn’t do it.
In hindsight, this would have been a great trade. Buy Apple stock, the iPhone takes over the world, and 18 years later, you are very rich.
Except things aren’t that easy.
As Sam Ro wrote last December, identifying winning stocks is hard. Holding winning stocks is a nightmare.
This chart helps explain why.
Above are the twenty best-performing stocks over the 40 years from 1985 to 2024.
Although each of these companies would have made a buy-and-hold shareholder very rich, achieving that outcome would have required watching your investment decline by 72% and doing nothing to stop it.
Most investors can’t do that.
Making the same point in 2016, Wesley Gray wrote a white paper titled “Even God Would Get Fired as an Active Investor.” In the summary, he writes:
Perfect foresight has great returns, but gut-wrenching drawdowns. In other words, an active investor who was clairvoyant (i.e. “God”), and knew ahead of time exactly which stocks were going to be long-term winners and long-term losers, would likely get fired many times over if they were managing other people’s money.
This is very true.
Let’s go back to Apple for a second.
In 2007, the year preceding my wife’s research project, Apple stock was up 124%. Her dad would have received none of those gains. Then 2008 came along, and Apple’s shares fell 56.96%.
Had he bought when my wife told him to buy, he would not have been pleased. If she were his investment advisor, she would have been fired, and that probably would have been the end of it.
But if he kept holding, he would have owned Apple shares when they again fell 44.2% from peak to trough in 2013, 30% in 2016, 33% in 2019, 31% in 2020, and roughly 26% in early 2025.
And yet, since the start of 2008, Apple has averaged 24% annual returns. $10,000 invested at the time grew to $297,278 by the end of last year. Having roughly $300,000 in Apple stock is excellent, but that also means the next 30% pullback will result in a $100,000 decline.
So, is now the time to sell Apple, lock in those gains, and move into something less risky?
It is a great question and one that investors with concentrated positions ask themselves every day. That is just one of the many reasons being a successful long-term investor is simple but not easy.
Personal Note:
Last weekend was my daughter’s first cheer competition, and I’ve never seen anything like it. A convention center filled with thousands of girls all in the same makeup, outfits, and ponytails. The whole place smelled like hairspray and nervous energy.
It was very different than the lacrosse tournaments I’ve become used to, but it was fun, and my daughter came away with a medal.
Thanks !