The Surprising Thing That the 5 Best Stocks of the Past Decade All Have in Common

By Investor Empires On Dec 27, 2024

Do you think that about half of the stocks in… Standard & Poor’s 500 Better than average performance in any given year. One would expect a balanced distribution between outperformers and underperformers in the market.

The truth is that the exact ratio moves up and down in real time. Overall, only about 20% of the S&P 500 components outperform the market average. That’s why finding a winner is such a big deal.

According to MacroTrends, the top five stocks of the past decade are Nvidia (Nasdaq: NVDA), AMD (NASDAQ:AMD), Kamtek (NASDAQ:CAMT), Adel Ishaq (NYSE: FICO)and Tesla (NASDAQ: Tesla). These stocks have Compound annual growth rates Between 40% and 75%. At a minimum, a $10,000 investment in Tesla 10 years ago is worth $290,000 today. On the upside, a $10,000 investment in Nvidia at the time is worth about $2.7 million now.

One of the main components of The Motley Fool’s Investment Philosophy It is “allowing the winners in your portfolio to keep winning.” There are relatively few winners, and if you have a winner in your portfolio and you sell it prematurely, you have an 80% chance of replacing it with a loser.

Sounds simple, right? Just buy good stocks and stick with the big winners. But in reality, Nvidia, AMD, Camtek, Fair Isaac, and Tesla all have one surprising thing in common that has made them extremely difficult to hold on to over the past decade.

Over the past 10 years, these five stocks have fallen in value by 50% or more at least once. Tesla has declined by more than 70% from its highest levels over the past ten years. Even powerhouse Nvidia is down 66% in 2022.

Nvidia’s sales have actually fallen by 50% or more on two separate occasions over the past decade. Tesla has done this three times. Likewise for AMD, if we round the numbers a little, it is currently 40% below the highs it reached earlier this year.

NVDA Data by YCharts.

When any stock falls this far, there will always be negative headlines that raise long-term concerns. These bearish conditions will scare investors into thinking that it is time to sell.

On the one hand, it’s easy to sympathize with the person who sold out. Imagine you have a position worth hundreds of thousands of dollars that declines by 50%. It will make you feel sick to watch that big profit disappear. But on the other hand, selling any of these five stocks after a 50% decline was ultimately the wrong move, causing sellers to miss out on huge gains.

“If you’re not willing to respond with equanimity to a 50% decline in market prices two or three times a century, then you’re not fit to be a common shareholder, and you deserve the mediocre result you get,” said investment scientist Charlie Munger. “I will be compared to people who are in a good mood, who can be more philosophical about these market fluctuations.”

Munger was never one to mince words. His words may sound harsh here, but his advice is nonetheless wise, for several reasons.

First, investors have to accept that a decline of 50% or more will occur, and that this may happen often. If you want to make money through investing, that’s part of the deal.

Second, a decline of 50% or more doesn’t really tell investors anything Regarding when to sell and when to buy. As we’ve seen, the five best stocks you could have bought 10 years ago all fell by at least 50% at least once. Those drops were not selling opportunities.

In the same vein, there are countless other stocks not mentioned here that fell by 50% or more and never recovered. Munger mentioned poise, which is what you need when you realize that a stock could rebound or fall further after a 50% drop. The bottom line is that investors need to respond carelessly to price, which brings me to my third point: Investors should have an investment thesis when buying stocks.

Your thesis should explain the conditions necessary to generate sustainable shareholder value. Then compare the company’s results to the thesis. If things go as hoped, it’s often a good idea to hold on, as you’ll have a solid foundation when the stock market gets turbulent.

In short, investors could see their portfolio cut in half even if they pick the best possible stocks. But volatility is part of the deal. If fear begins to surface, investors should unpack their investment thesis to see if they should continue to hold stocks in their portfolio.

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*Stock Advisor returns as of December 23, 2024

John Quast He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Tesla. The Motley Fool recommends Fair Isaac. The Motley Fool has Disclosure policy.

The surprising thing is that the top 5 stocks of the past decade all have this in common Originally published by The Motley Fool