There are 271 stocks that would have earned you greater-than-20% annualized returns from 1998 through 2007. 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 1998 through 2002:
|
Company |
1998 |
1999 |
2000 |
2001 |
2002 |
|---|---|---|---|---|---|
|
Activision |
(38%) |
38% |
(8%) |
158% |
(44%) |
|
Adobe Systems |
13% |
188% |
78% |
(47%) |
(20%) |
|
CAM
Commerce Solutions |
41% |
420% |
(80%) |
14% |
(12%) |
|
FactSet Research Systems |
101% |
93% |
(6%) |
(6%) |
(19%) |
|
Fuel-Tech |
33% |
9% |
(25%) |
259% |
(31%) |
|
Gilead
Sciences |
7% |
32% |
47% |
59% |
3% |
|
Icahn Enterprises |
3% |
(24%) |
13% |
1% |
2% |
And then from 2003 through 2007:
|
Company |
2003 |
2004 |
2005 |
2006 |
2007 |
|---|---|---|---|---|---|
|
Activision |
87% |
66% |
24% |
25% |
72% |
|
Adobe Systems |
58% |
61% |
20% |
11% |
4% |
|
CAM Commerce Solutions |
101% |
139% |
20% |
17% |
73% |
|
FactSet Research |
35% |
53% |
8% |
37% |
(1%) |
|
Fuel-Tech |
(15%) |
32% |
95% |
172% |
(8%) |
|
Gilead Sciences |
71% |
20% |
51% |
24% |
42% |
|
Icahn Enterprises |
85% |
68% |
32% |
122% |
51% |
Each of these companies would have earned you greater-than-20% annual returns during the past 10 years, yet just one (Gilead) went up every year (and there were only three of the entire 271 that accomplished that feat).
What does this tell us about earning returns for 10 years or more? It tells us that we need to be patient. Our best move today is to buy good companies with bright futures and hold them, despite inevitable market volatility.
How many folks dumped CAM Commerce during the undoubtedly painful volatility of its 80% drop in 2000? The returns have been fantastic since then.
Market-beaters of the future
One year isn't 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 market-killers for Motley Fool Stock Advisor subscribers for the next 10 years. While they can't predict whether their recommendations will go up or down in any given year, they're confident in their long-term prospects. And in their five-plus years of making picks, the results are promising: 51% average returns for David and Tom, versus 13% for the S&P 500.
The market's greatest gains from now until 2018 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 we hope you'll stick around our community until 2018 and earn incredible returns along with us.
This article was originally published Jan. 31, 2006, as "Earn Great Returns Until 2016." It has been updated.
Tim Hanson does not own shares of any company mentioned in this article. Activision is a Motley Fool Stock Advisor recommendation. No Fool is too cool for disclosure. Not even Tim.
