This is a recent post that popped up in my Twitter feed.
It follows the usual nonsense line of, if you had gone back in history and bought this stock and held it till today you would have X amount of money. It’s the same nonsense as saying that if you had invested in APPL on the float and then held it you would be worth a king’s ransom.
Let’s look at the trajectory of your investment and see how you would have fared.
You would have had to endure a maximum drawdown of 70% in the years after listing and a collection of additional 50% plus drawdowns. But you can also see that most of the gain comes in two distinct periods – the rest of the time price either goes down or sideways for years.
An understanding of survivor bias and how it can trick investors into false narratives such as buy and hold is an essential part of trading. What is forgotten in these narratives are names such as TheGlobe.com eToys.com, drkoop.com and my favourite pets.com because who didn’t believe an idea where you buy pets online and they are delivered to you wasn’t going to fail. These all listed in the same decade but disappeared without a trace.
The stocks that are not around any more are more important than the ones that still are and which you imagine you might have bought.