There are 325 stocks that would have earned you greater than 20% annualized returns during the past 10 years. These incredible investments have a few characteristics in common. One of the most striking is their unpredictability.
The numbers story
While a buy-to-hold strategy would have earned you massive returns, it wouldn't have been a steady ride. Instead, it could have been a loss one year and a huge gain the next. Consider these examples:
|
Company |
1996 |
1997 |
1998 |
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
|---|---|---|---|---|---|---|---|---|---|---|
|
XTO Energy |
44% |
54% |
(53%) |
13% |
723% |
(2%) |
46% |
49% |
57% |
67% |
|
Ryland Group |
(2%) |
79% |
26% |
(17%) |
78% |
92% |
(8%) |
147% |
36% |
26% |
|
SanDisk |
(39%) |
116% |
(36%) |
618% |
(42%) |
(44%) |
29% |
184% |
(20%) |
152% |
|
Apollo Group |
105% |
46% |
11% |
(40%) |
145% |
47% |
50% |
50% |
16% |
(25%) |
|
Network Appliance |
34% |
47% |
180% |
269% |
55% |
(57%) |
(58%) |
91% |
60% |
(19%) |
|
Citrix Systems |
144% |
95% |
94% |
163% |
(63%) |
8% |
(46%) |
63% |
17% |
17% |
|
TJX Cos. |
156% |
67% |
77% |
(27%) |
37% |
46% |
(1%) |
11% |
17% |
(7%) |
Each of these companies would have earned you greater than 20% annual returns during the past 10 years. Yet not a single one went up every year. In fact, there were only two years when all seven of them increased in value -- and there was not one year when all 325 of the market's best increased in value.
What does this tell us about earning returns for 10 years or more? It tells us that we need to be patient. The best we can do today is buy good companies with bright futures and hold them, despite inevitable market volatility -- like the period we're in right now.
How many folks dumped SanDisk when it shed a third of its value in 1998? They've missed out on meteoric growth since then. Or how about those who punted Apollo when it started looking "expensive" in 2000? The gains are great since then.
The Foolish bottom line
One year is not long enough to judge an investment thesis. That's why the real gains are made by folks who identify opportunities and hold onto them. Master investor Warren Buffett readily admits that his incredible portfolio would be better off today if he'd never sold a single share.
Fool co-founders David and Tom Gardner have made it their mission to identify 2016 market-killers for Motley Fool Stock Advisor subscribers. While they can't predict whether their recommendations will go up or down in any given year, they are confident in their long-term prospects. And in their nearly four years of making picks, the results are promising: 58% average returns for David and Tom versus 18% for the S&P 500.
The market's greatest gains from now until 2016 will be made by investors who can be patient with their stocks. If you'd like some help finding stocks worthy of your patience, click here to take a 30-day free trial to Stock Advisor. There's no obligation to subscribe, but our hope is that you'll stick around our community until 2016 and earn incredible returns along with us.
This article was originally published Jan. 31, 2006. It has been updated.
Tim Hanson does not own shares of any company mentioned in this article. No Fool is too cool for disclosure.
