Unfortunately, the research shows otherwise. ![]() ![]() Some investors would be quick to point out that while these companies may be the best of the best, they are still just individual stocks, and a portfolio approach should limit the drawdown risk. ![]() Although shareholders from the 1997 IPO have made compound annual average gains of 36%, they also suffered through the dot-com crash of the early 2000s when Amazon’s share price fell by a gut-wrenching 91%.Ī perfect portfolio isn’t pain-free either Still, Amazon stock has not been impervious to very large drawdowns. Looking back further, shareholders since Apple’s IPO in 1980 have earned a compound annual average return of 20% but have experienced drawdowns of more than 70% on three separate occasions.Īpple has drawn down over 70% three timesĪmazon is another of the most successful investments in history and the fourth-highest performer in the Bessembinder study, with shareholder wealth growing by more than $600 billion between 20. For example, in this decade Apple’s share price fell by 40% over 9 months in 2012. But this hasn’t stopped the stock from making substantial retracements. Those shareholders that invested earlier in these top stocks, in the decade preceding their decade of greatest performance, would have suffered a maximum 52% drawdown lasting 22 months, on average, on their way to extreme wealth creation.Īpple and Amazon the rule not the exceptionĪpple and Amazon are two striking examples of remarkable companies with exceptional long-term stock performance that have been accompanied by staggering drawdowns.Īpple created the most wealth in a decade of all the companies in the study, adding $1.5 trillion of shareholder value from 2010 to 2019. However, shareholders had to endure a maximum drawdown in the same decade of 33% that lasted for 10 months. He found that, on average, the most successful 100 stocks created $US219 billion of wealth over a decade-long horizon. He then concentrated on the top 100 performing stocks, measuring their maximum peak-to-trough share price drawdowns. His more recent research focussed on the characteristics of those ‘outlier’ stocks, including their interim share price movements.īessembinder studied the wealth creation of all publicly listed US stocks across each of the seven decades from 1950 to 2019. In July 2020, Hendrick Bessembinder, a finance professor at Arizona State University, published a series of papers with an important and surprising conclusion: that even the stocks of companies that had created the most wealth for shareholders over a decade experienced deep and protracted share price reversals along the way – often several times.īessembinder had become well-known after he demonstrated that all the stock market’s value creation over the long run was concentrated in just a few stocks with extreme outperformance. Instead of raising alarm, it has been a great reminder that investors need to stay the course with winning businesses – the likes of Apple and Amazon – if they want to reap great rewards in the future. While the selloff in global equity markets early this year was unpleasant, it was not unusual. But the truth is that to achieve outstanding long-term returns, investors must be prepared to endure large drawdowns along the way – even for the best-performing stocks and portfolios. Investors have been promised an elixir of big returns and low volatility.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |