Last week marked one year since the 2020 market crash … it can be tough to stay patient when a stock price plunges … some of the biggest market winners in history needed that patience to win big
This week, we marked one year since the stock market low of 2020. On March 23, the S&P reached its bottom, ending a plunge that took it down 34% in 23 trading days.
There was a ton of uncertainty as the scope of the pandemic became clear. Many people panic-sold. But if you believed in a stock, I hope you held on.
If you did the latter, you made a great choice, especially if you held tech stocks.
No one can predict the future. But the tech space easily led the recovery.
For a rough idea of how tech stocks dominated in 2020, here is a chart of the Technology Sector SPDR ETF (XLK) from the beginning of 2020 to Tuesday.
The fund has almost doubled since it marked its nadir on March 23 and is up more than 40% since the beginning of 2020.
This recovery has been a great demonstration of an important investing concept. One that every investor needs to remember in good times and bad.
If you’re honest, you’d probably admit to checking on your stocks (that aren’t in a 401(k)) a lot more than you should.
But staying patient is key to getting big stock gains.
Let me show you an example…
***Think of your stocks like buried treasure
In the typical literary use, pirates bury their treasure on a desert island then return later to claim it – usually using a treasure map.
There is a similar story for stocks. If you think of some stocks as “buried treasure,” you invest money in a stock, and leave it buried.
Now, here is the difficult part.
You have to stay patient.
Then, at a future point you return. Our resident tech expert, Matt McCall, often preaches patience to his subscribers. Matt has picked 23 stocks that have gone up 10X and he describes the importance of patience this way.
Most investors don’t have the long-term outlook that this kind of world-changing technology requires. If that’s you, here is my suggestion…
Go out and dig a big a hole in your backyard. Bury these stocks in it, and in 10 years you can dig up your buried treasure. Metaphorically speaking, of course.
With pirate treasure the amount stays the same, but with stocks, the pot has grown!
***How staying patient pays off
Patience is the key to getting that 10x stock. Here is Matt describing the power of patience in the Early Stage Investor Owner’s Manual.
Amazon’s performance from early 2009 to mid-2019 is a performance for the ages. It’s one of the best stock market runs and one the best business success stories you’ll ever come across.
Now let’s look at that table of annual Amazon stock returns again.
There are no years in that table that show an annual gain of 1,000%… or 500%… or 300%… or even 200%!
Instead of riding some monster 500%+ annual gains, Amazon “snowballed” its way to world domination and incredible stock market returns.
When I say “snowball,” I’m not talking about playing outside in the winter.
In the business and financial world, the term “snowball” is used to describe the incredible effects of compound returns.
Compound returns happen when you place some money into an investment that generates a return on your money. But instead of taking the return and spending it, you “reinvest” it… and buy more of the investment.
By doing this, your dividends earn more dividends and your interest earns more interest and your capital gains earn more capital gains. You stack gain on top of gain on top of gain on top of gain.
Matt goes on to show that the same story is true of Microsoft and Apple. These companies didn’t become dominant overnight. It took years.
Of course, no one can predict the future, and maybe during this past pandemic year, your own financial situation required selling stock that you believe will dominate in the future.
But the investors who stayed with high-quality, early-stage stocks through the ups and downs over years are the only ones who make huge returns.
I’ll let Matt sum up the idea.
Patience is key.
You can hardly make a move in America without coming into contact with Amazon, Apple, or Microsoft. They are among the most successful businesses in U.S. history. Their soaring stock market values have made many people very rich.
However, these incredible businesses didn’t take over the world in a day, a week, or even a year.
It took them years and years to grow from small to dominant.
Only their patient shareholders made the really big money.
Even the greatest businesses need time to “gain weight” and let compound returns work their magic.
As investors, we’d be wise to keep this in mind… be patient with great businesses… think long term… maintain reasonable expectations with our holdings… and snowball our way to wealth.
Enjoy your weekend,
Editor in Chief, InvestorPlace