There's serious money to be made in stocks, but it's not made in a matter of months, or even a few years. No, the real money to be made in stocks extends over a minimum period of 10 to 20 years.
And superwealth -- measured in tens to hundreds of millions of dollars -- is built over 25- to 75-year periods.
The origins of Oracle
Let's put Oracle under the microscope, so that we might understand this core investing principle.
Founded it 1977, Oracle has long been a leading marketer of database software. The company came public in 1986, priced at $15. Thanks to splits, however, folks who got in on that fateful March day have seen their cost basis reduced to $0.07 per share.
Yet Oracle's early years were not without rough patches.
Put a price on patience
While the stock rose modestly following its 1986 IPO, slowing sales sent it crashing down in late 1990. In fact, buy-and-hold Oracle investors didn't make a dime between 1988 and 1990.
Could you have stomached that drop? Are you the type of investor who's willing to accept a 0% gain for nearly three years?
From 1990 to today, Oracle stock has risen more than 80 times in value, growing around 31% per year. That turns a $10,000 stake into $800,000. Even better, investors who've held on since the IPO have seen their initial investment increase more than 195 times in value -- making a $10,000 investment worth nearly $2 million.
And these sorts of investments are available over and over again.
Over and over? Right ...
Skeptical? Don't be. Wall Street doesn't always recognize quality, even when it's staring it right in the face. Between 1996 and 1998, for example, Boyd Gaming (NYSE: BYD ) ,Essex (Nasdaq: KEYW ) , Chesapeake Energy (NYSE: CHK ) , Ceradyne (Nasdaq: CRDN ) , Deckers Outdoor (Nasdaq: DECK ) , II-VI (Nasdaq: IIVI ) , and DenburyResources (NYSE: DNR ) all saw their stock prices decline.
Yet they've all gone on to be tremendous winners, rising 10 to 100 times in value!
That brings me to small caps. They've been battered recently. The Russell 2000 is some 7% off its highs, and some of our Hidden Gems recommendations have been cut down by 20% or more in a single day. Yet the fact remains that small caps offer the greatest returns to investors. But you must, as we recommend, give them time.
The Foolish bottom line
Because there will be weeks, months, and maybe even a few years of zero gain in the market, we encourage all of our members at Hidden Gems to take a long time horizon when assessing their portfolios. While that can be difficult during choppy times like these, it's absolutely crucial to building long-term wealth, and perhaps even superwealth.
If you'd like to join us at Hidden Gems as we ferret out the best small companies to hold for the next few decades, click here to try our service free for 30 days. There's no obligation to subscribe.
This article was originally published on Aug. 7, 2006. It has been updated.
Tim Hanson does not own shares of any company mentioned in this article. Deckers Outdoor and II-VI are Hidden Gems recommendations. No Fool is too cool for disclosure.