28 Surprising And Important Things About Investing Every Investor Should Know
Over three months ago in early January 2017, I shared 27 surprising and important things about investing that I think every investor should know.
These things come from my 10-plus years of being a student of investing. Earlier today, a really interesting fact about the stock market I learnt of recently resurfaced in my mind, thereby prompting me to add to my ever-expanding list of surprising and important investing things.
Here’s Number 28:
28. The stock market’s best long-term winner can make you vomit with fear and pain over the short-term
The US-listed energy drinks maker Monster Beverage generated a total return of 105,000% from 1995 to 2015, according to an article penned by former Fool Morgan Housel. The company was literally the best-performing stock in the US for that 20-year timeframe.
But, Morgan also added in his article that Monster Beverage’s stock had dropped by 50% or more from a peak on four separate occasions between 1995 and 2015. The stock actually lost more than two-thirds of its value twice, and more than three-quarters once.
So, in a period when Monster Beverage had the best long-term performance amongst every other US stock, there were short pockets of time when the company’s stock price movement were vomit-inducing for its investors.
Monster Beverage’s experience outlines an essential truth about investing: There’s no long-term gain without short-term pain.
In Singapore’s stock market, healthcare services provider Raffles Medical Group Ltd (SGX: BSL) is a great example, though it’s nowhere near as dramatic as Monster Beverage. Since the start of 2005, Raffles Medical’s stock price has gained 883%. Here’s a chart showing the maximum peak-to-trough loss (known as the maximum drawdown) that the company’s stock suffered in each year from 2005 to 2014:
Source: S&P Global Market Intelligence
For the timeframe under study, Raffles Medical’s stock experienced a maximum drawdown of 10% or more in nine years. In 2008, the company’s stock price even dropped by 60% from top-tick to bottom-tick.
Seeing our stocks fall over the short-term can be an emotionally draining affair. I know – I’ve been through it. But, simply knowing how common short-term volatility in the stock market is – even with huge winners – can help us prepare ourselves better mentally when investing for the long-term.
