There are 325 stocks that would have earned you greater than 20% annualized returns from Jan. 1, 1996, to Dec. 31, 2005. 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 from 1996 to 2005:
|
Company |
1996 |
1997 |
1998 |
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
|---|---|---|---|---|---|---|---|---|---|---|
|
Centex |
7% |
69% |
44% |
-45% |
53% |
61% |
-10% |
105% |
27% |
20% |
|
Cheesecake Factory |
-17% |
64% |
55% |
23% |
10% |
42% |
5% |
19% |
11% |
15% |
|
Encore Wire |
77% |
167% |
-55% |
-24% |
-24% |
97% |
-25% |
93% |
12% |
71% |
|
Imclone
Systems |
30% |
-13% |
25% |
320% |
122% |
22% |
-75% |
262% |
15% |
-26% |
|
Station Casinos |
-32% |
-3% |
-19% |
178% |
0% |
-23% |
64% |
71% |
83% |
26% |
|
Teva
Pharmaceuticals |
9% |
-4% |
-15% |
70% |
105% |
-6% |
26% |
45% |
4% |
45% |
|
Time Warner |
-17% |
177% |
592% |
104% |
-54% |
-1% |
-59% |
35% |
7% |
-10% |
Each of these companies would have earned you greater than 20% annual returns over the past 10 years. Yet not a single one went up every year. There were only two years when all seven of them increased in value -- and there was no one year when all 325 of the market's best increased in value.
What does this tell us about earning solid returns until 2016? 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.
How many folks dumped Encore Wire after its three-year decline from 1998 to 2000? If they jumped ship, they missed out on the stock's recent resurgence. Indeed, buying during tough times is one of the best ways to supercharge your returns. Or what about the folks who sold Teva after it doubled in 2000? Although 2001 was a down year, the gains have been 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 four (plus) years of making picks for the service, the results are promising: 57% average returns for David and Tom versus 20% 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. Time Warner is a Stock Advisor recommendation. No Fool is too cool for disclosure.
