Hello, Reader.
We all know the investing axiom “buy low, sell high.”
Too often, though, we do the exact opposite. We get spooked out of a great stock, either because its price falls for a while or because public opinion turns against it.
We allow our doubts to overrule our judgment… and end up with a lack of confidence to stay the course.
I call this type of mistake the “Tyranny of the Immediate.”
This tyranny prioritizes short-term results over long-term potential. It demands being right… right now. But by doing so, it often sabotages the opportunity to capture large long-term gains.
That’s because the stock market is not linear. It is the opposite.
It sometimes gyrates as wildly as a Water Wiggle on its way to producing gains. (Confused millennials and Gen Zers can Google that 1960s product name.)
Even legendary stocks will try the patience and endurance of investors from time to time… en route to delivering their market-trouncing returns.
To underscore this point, let’s use today’s Smart Money to revisit the early days of Berkshire Hathaway Inc.’s (BRK.A) multi-decade, wealth-generating run. We’ll also take a look at one of my best-performing stocks that initially traded just as poorly as BRK. And then, I’ll share where you can find the stocks that are worth holding – even if during times of volatility.
A Cautionary Tale
If you had invested just $5,000 in Berkshire Hathaway Inc. (BRK.A, B) – the conglomerate Buffett and the late Charlie Munger started putting together in 1965 – at any time during the early 1970s, that investment would be worth several million dollars today.
Easy-peasy, right?
Not exactly. The first few years of that uber-successful ride would not have been especially pleasant.
Let’s say you purchased your Berkshire stock near the end of 1973, when it was trading for $85 a share. Almost immediately, that investment would have become a big loser, as the stock lost more than half its value the following year.
Undoubtedly, many Berkshire shareholders lost their patience or their nerve in late 1974 and dumped the stock to cut their losses. That’s the “Tyranny of the Immediate” in action. However, that also was the precise moment Buffett boldly declared in a Forbes story, “Now is the time to invest and get rich.”
So, let’s imagine that you did not sell. Instead, you hung on for the ride and waited for the magic to happen.
Under that scenario, your initial $5,000 investment would have recovered all its losses by the end of 1976, and then grown to about…
- $7,400 by the end of 1977
- $14,500 by the end of 1979
- $27,800 by the end of 1981
- and more than $75,000 by the end of 1983!
For perspective, a $5,000 investment in the S&P 500 over that identical one-decade span would have grown to just $14,000.
Stocks that produce “Berkshire-sized” gains are rare, of course. But the market dynamics that foster these kinds of gains are not rare at all.
Staying the Course
Some of my best investments started as poorly as buying Berkshire Hathaway in 1973.
Back in 1999, for example, I recommended buying shares of Freeport-McMoRan Inc. (FCX), one of the world’s largest copper producers…
And the stock tumbled nearly 50% over the next two years.
In this situation, I could have easily fallen victim to the “Tyranny of the Immediate.” But I didn’t, which is a good thing…
Because within three years of recommending the stock, it had recovered to gain more than 50%, even though the S&P 500 had dropped more than 15% over the same time frame.
FCX would go on to post gains of more than…
- 200% after five years
- 500% after seven years
- and 1,000% after nine years.
The copper mining giant is one of my current Fry’s Investment Report portfolio positions. I recommended it to my subscribers in January 2020.
Along the way, we’ve experienced dips of 57%, 27%, and 50%. But we didn’t give in to the “Tyranny of the Immediate”… and now sit on 280% gains.
All this to say, dumping a great stock quickly is a bit like taking your new puppy to the pound because it peed on the carpet. Young investments, like young dogs, sometimes misbehave. But if you take your young investment “to the pound,” you’ll never gain the reward it could offer.
So, to discover which stocks are worth staying the course – and how to have the confidence to do so – I hope you’ll take a few minutes to learn how to join us at Fry’s Investment Report today.
(If you’re already a Fry’s Investment Report subscriber, you can click here to log in to our members-only website now.)
Regards,
Eric Fry
P.S. An area in Nevada could be the most valuable piece of real estate in all of America.
What’s been found just below the surface of this desert is critical to our economic future and national security, with Elon Musk calling it “a license to print money.”
