There are 271 stocks that would have earned you more than 20% in annualized returns from 1998 through 2007.
These incredible investments have some common characteristics. One of the most striking is their unpredictability.
The numbers story
With these stocks, a buy-to-hold strategy would have earned you massive returns, but you'd have had an unsteady ride. It was loss one year and huge gain the next. Consider these examples from 1998 through 2002:
|
Company |
1998 |
1999 |
2000 |
2001 |
2002 |
|---|---|---|---|---|---|
|
Best Buy |
233% |
64% |
(49%) |
152% |
(51%) |
|
Deckers |
(71%) |
20% |
100% |
(19%) |
(21%) |
|
K-Swiss |
65% |
38% |
43% |
33% |
31% |
|
Sigma Designs |
(21%) |
283% |
(90%) |
48% |
102% |
|
THQ |
83% |
24% |
(5%) |
99% |
(59%) |
|
Urban Outfitters |
(8%) |
73% |
(71%) |
204% |
(2%) |
|
XTO Energy |
(55%) |
21% |
376% |
(5%) |
41% |
And then from 2003 through 2007:
|
Company |
2003 |
2004 |
2005 |
2006 |
2007 |
|---|---|---|---|---|---|
|
Best Buy |
116% |
14% |
10% |
13% |
7% |
|
Deckers |
514% |
129% |
(39%) |
117% |
159% |
|
K-Swiss |
122% |
21% |
12% |
(5%) |
(41%) |
|
Sigma Designs |
118% |
32% |
55% |
66% |
117% |
|
THQ |
28% |
36% |
60% |
36% |
(13%) |
|
Urban Outfitters |
214% |
140% |
15% |
(9%) |
18% |
|
XTO Energy |
53% |
56% |
78% |
7% |
37% |
Each of these companies would have earned you greater-than-20% annual returns during the past 10 years, yet not one went up every year. Only three of the entire 271 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 Sigma Designs when it dropped 90%, or Urban Outfitters when it declined 71%? Both would have turned out to be bad decisions.
Market-beaters of the future
One year isn't long enough to judge an investment thesis. That's why real gains are made by folks who identify opportunities, grab them, and hold on to 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. They can't predict whether their recommendations will go up or down in any given year, but they are confident in their long-term prospects. And in their five-plus years of making picks, the results are promising: 55% average returns for David and Tom, against 17% 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 to take a 30-day free trial of 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. Best Buy is a Motley Fool Stock Advisor and Inside Value recommendation. No Fool is too cool for disclosure. Not even Tim.
