Why is booking a 100 bagger so tough?
Because our ability to think that far into the future is insanely hard. AND it’s new to us.
It was only in the last 500-600 hundred years have we been able to think far in the future. (20+ years)
A thread...
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Because our ability to think that far into the future is insanely hard. AND it’s new to us.
It was only in the last 500-600 hundred years have we been able to think far in the future. (20+ years)
A thread...
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The median time for a stock to return 100 to 1 in a recent study was 26 years. A 20% compounded annual return for 25 years will earn you 100x
However, 20% compounded for just 20 years gets you 40x
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However, 20% compounded for just 20 years gets you 40x
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Back to the history. In medieval times, humans were consumed with their part in society and everyday life. Reaping. Sowing. Disease. War and Peace.
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“There was little reason to believe in long-term change or even improvement in human affairs,” wrote historian Lucian Hölscher in a 2018 essay. “The long-term future, at least in this world, did not exist. Rather people lived in something of an extended present.”
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Things started to change a couple centuries later.
In the 18th century, Louis Mercier published L’An 2440 a futuristic novel about a man who wakes up in the 25th century in Paris. This was completely unheard of at the time. People's idea of what future is changed forever...
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In the 18th century, Louis Mercier published L’An 2440 a futuristic novel about a man who wakes up in the 25th century in Paris. This was completely unheard of at the time. People's idea of what future is changed forever...
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But we - as humans - seemingly cycle between a long term future mindset and what’s to come tomorrow.
François Hartog, the author of Regimes of Historicity, says we’re in the cycle of short term-ism now. It started sometime between the late 1980s and the turn of the century.
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François Hartog, the author of Regimes of Historicity, says we’re in the cycle of short term-ism now. It started sometime between the late 1980s and the turn of the century.
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Hartog calls it “presentism.” Which is defined as “the sense that only the present exists, a present characterized at once by the tyranny of the instant and by the treadmill of an unending now.”
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In @MITTechReviews "Humanity is stuck in short-term thinking. Here’s how we escape", author Richard Fisher mentions it's salience.
Fisher says salience is “a cognitive bias that means people are more likely to imagine the future through the lens of recent events.”
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Fisher says salience is “a cognitive bias that means people are more likely to imagine the future through the lens of recent events.”
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Fisher noted “salience we won’t act on things until it’s too late. Take COVID for example. Or Climate change.
(the intro of this thread is b/c of Fisher's article. All credit to him for helping marry short-term vs long-term thinking of humans)
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technologyreview.com/2020/10/21/100…
(the intro of this thread is b/c of Fisher's article. All credit to him for helping marry short-term vs long-term thinking of humans)
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technologyreview.com/2020/10/21/100…
So how does this relate to the elusive 100-bagger we all dream of?
We know on average it takes about 25 years. Can we even fathom what 25 years into the future looks like?
Do you even remember what the world was like 25yrs ago?
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We know on average it takes about 25 years. Can we even fathom what 25 years into the future looks like?
Do you even remember what the world was like 25yrs ago?
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Human behavior changes. Technology changes. The world changes.
They move in likely predictable cycles - think @HoweGeneration The Fourth Turning.
But even still, we can’t fathom what 2045 will look like. Only first level thinking Like “robots will take over the world.”
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They move in likely predictable cycles - think @HoweGeneration The Fourth Turning.
But even still, we can’t fathom what 2045 will look like. Only first level thinking Like “robots will take over the world.”
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Plus @dailydirtnap said it best in his Dec 29 recent #Bloomberg op-ed
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bloomberg.com/opinion/articl…
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bloomberg.com/opinion/articl…
ShawSpring’s @dennishong also calls it out in his Nov 2020 letter on Optionality. He mentions b/c of how difficult the future is, we just end up applying linear growth models.
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files.constantcontact.com/3b2a12b0701/26…
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files.constantcontact.com/3b2a12b0701/26…
Point being thinking in generational shifts is almost impossible. It’s too hard to go down the rabbit hole when our predictions themselves will likely be too myopic or completely off base.
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As of 2018, the average holding period of stocks was just over 8 months.
How are we supposed to make 100x our money if we’re holding for less than 1 year?
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How are we supposed to make 100x our money if we’re holding for less than 1 year?
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The answer has a lot to do with doing nothing.
It’s hard for us humans to do nothing. Our brains are wired with a fight/flight response. Its an automatic physical response triggered by a change in brain chemicals that drives us to act without any thought.
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It’s hard for us humans to do nothing. Our brains are wired with a fight/flight response. Its an automatic physical response triggered by a change in brain chemicals that drives us to act without any thought.
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So sitting on our hands is almost impossible.
Tech crash. Great Recession. COVID-19. If you’re not a professional trader, you should’ve never sold.
Here's the $SPY since '93.
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Tech crash. Great Recession. COVID-19. If you’re not a professional trader, you should’ve never sold.
Here's the $SPY since '93.
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We get caught up in the day-to-day market noise. We think we NEED to sell at the first instance of bad news.
Company specific or macro related. It hits our phones and we’ll sell the next tick.
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Company specific or macro related. It hits our phones and we’ll sell the next tick.
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Let's take a #100bagger example from @chriswmayer 's book. One of the case studies was on Monster Beverage $MNST
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Monster Beverage ($MNST) became a #100bagger in under 10 years. It ended up becoming a 700-bagger by 2014.
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$MNST - had 3 separate months of 30% drawdowns. And 11 quarters where it was down 10%+.
Think you could've held while other stocks in your portfolio were potentially going up?
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Think you could've held while other stocks in your portfolio were potentially going up?
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Maybe you sold too early.
That's one of the toughest lessons. Letting our winners ride. After all, who isn’t happy with a double? Or 5-10x return? Even 20x?
“Nobody ever went broke taking profits.”
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That's one of the toughest lessons. Letting our winners ride. After all, who isn’t happy with a double? Or 5-10x return? Even 20x?
“Nobody ever went broke taking profits.”
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Here’s legendary investor Chuck Akre - who has spent his whole life going after #100baggers (he’s had just two) on our everyday distractions.
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That's why the dumbest articles on the internet are “How much you would have had had you bought Amazon in 1994”
How many of us would be able to hold through $AMZN’s 90+% drawdown in 2000. Or its 60% drawdown in 2008.
The majority of us couldn’t… and didn’t.
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How many of us would be able to hold through $AMZN’s 90+% drawdown in 2000. Or its 60% drawdown in 2008.
The majority of us couldn’t… and didn’t.
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$AMZN was founded in '94 - 26 years ago.
Bezos’ idea was to sell books online. Even Bezos himself had no conception of AWS becoming the mega cash cow it is now. Or the decision to buy Whole Foods.
How could you?
You need to trust management to manage your capital for yrs
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Bezos’ idea was to sell books online. Even Bezos himself had no conception of AWS becoming the mega cash cow it is now. Or the decision to buy Whole Foods.
How could you?
You need to trust management to manage your capital for yrs
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We also tend to be horrible forecasters. Especially the “experts”
The IMF’s track record of predicting downturns is less than 1% (4/469 since '88) by the spring of the preceding year.
They then projected 111 slumps that spring. But less than 25% of those actually happened.
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The IMF’s track record of predicting downturns is less than 1% (4/469 since '88) by the spring of the preceding year.
They then projected 111 slumps that spring. But less than 25% of those actually happened.
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We could go on and on… the point is making many times your money is insanely hard.
This year is not normal. Companies like $TSLA being up 7x in 2020 alone is not normal.
Remember, it takes about 20-25 years on average.
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This year is not normal. Companies like $TSLA being up 7x in 2020 alone is not normal.
Remember, it takes about 20-25 years on average.
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Every ounce of your being will question whether you made the right choice to invest. Whether you should sell. Remember, we're hardwired to do something.
However, studies show you pretty much need to do NOTHING for 20-25 years.
Easier said than done. Good luck!
/end
However, studies show you pretty much need to do NOTHING for 20-25 years.
Easier said than done. Good luck!
/end
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