Top 5 Stocks of the Decade Share One Key Trait – Discover What!

It might seem logical to assume that around 50% of the stocks in the S&P 500 would perform above the average in any given year, suggesting a fair split between stocks that exceed or fall below market performance.

However, the truth is quite different. The actual proportion fluctuates constantly, but on average, only about 20% of S&P 500 companies surpass the market average each year. This makes the search for high-performing stocks significantly challenging.

As per data from MacroTrends, the top five performers of the last decade include Nvidia (NASDAQ: NVDA), AMD (NASDAQ: AMD), Camtek (NASDAQ: CAMT), Fair Isaac (NYSE: FICO), and Tesla (NASDAQ: TSLA). These companies have seen compound annual growth rates ranging from 40% to 75%. For instance, a $10,000 investment in Tesla a decade ago would now be valued at around $290,000, whereas the same amount invested in Nvidia could have ballooned to nearly $2.7 million today.

A central principle of The Motley Fool’s investment strategy is the advice to “let your portfolio’s winners keep winning.” Given the scarcity of true winners in the market, selling a strong performer too soon could lead you to swap it with a stock that underperforms, with about an 80% likelihood of choosing a lesser-performing replacement.

While the strategy of holding onto strong stocks might seem straightforward, Nvidia, AMD, Camtek, Fair Isaac, and Tesla all share a common trait that has made sticking with them through the last decade particularly difficult.

Common Challenges Among Top Performers

In the past decade, each of these five stocks has experienced a decline in value of at least 50% at one point. For example, Tesla’s value dipped more than 70% from its peak during this period. Even Nvidia, a formidable player in the tech sector, saw its value plummet by 66% as recently as 2022.

Nvidia’s shares have actually fallen by 50% or more twice over the last ten years. Tesla has faced similar significant drops three times, and AMD also saw its stock price halve on three occasions, with a recent 40% decline from its high earlier this year.

Such dramatic drops are often accompanied by pessimistic media coverage, which can instill a fear-driven impulse to sell among investors.

On one hand, it’s understandable why someone might choose to sell after witnessing their investment’s value halve; it’s incredibly disheartening to see substantial gains erode. However, history has shown that selling these stocks following a major drop would have been a mistake, one that cost investors significant potential gains.

Investment Strategies for Handling Market Dips

Investment luminary Charlie Munger famously said, “If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder, and you deserve the mediocre result you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.”

Munger’s blunt advice underscores a crucial reality for investors: significant drops in stock value are not only possible but expected. To profit from investing, one must be prepared for these downturns.

Moreover, a 50% drop doesn’t provide clear directives about when to buy or sell. As demonstrated by the top five stocks over the last decade, such drops were not signals to sell. On the other hand, numerous other stocks have also plummeted by 50% or more and failed to recover. This unpredictability requires investors to maintain a level-headed approach to both dips and surges in stock prices.

Finally, having a well-considered investment thesis is essential. This thesis should outline what you expect from a company in terms of creating long-term value for shareholders. Continual assessment of the company’s performance against your expectations can provide a solid basis for decision-making when the market is volatile.

In essence, even if you choose the best possible stocks, your portfolio’s value might still see significant reductions. The key is not to let fear dictate your actions but to revisit your investment thesis and decide whether to hold based on informed analysis and strategic thinking.

Jon Quast 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 a disclosure policy.

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