Even the investments that created the most wealth for shareholders during a given decade experienced very substantive reversals along the way.
Apple
Apple generated $1.64 trillion in shareholder wealth between January 1981 and December 2019, more than any other publicly-traded US firm since 1926. Of this total, $1.47 trillion was accrued during the most recent 2010-2019 decade. Yet, on no less than three occasions, Apple shareholders experienced drawdowns that exceeded 70%. These included a drawdown of 74.0% from May 1983 to August 1985, a drawdown of 79.7% from February 1992 to December 1997, and a drawdown of 79.2% from March 2000 to March 2003. Within the last of these, Apple experienced a drawdown of 75.6% during the short four-month period August 2000 to December 2000.
Amazon
Between June 1997 and December 2019 equity investments in Amazon improved shareholder wealth by $865 billion, which is the fourth highest total among the 26,168 firms that appear in the CRSP common stock database since 1926. Of this total, $632 billion accrued during the most recent decade. Yet, between February 2000 and September 2001 Amazon shareholders experienced a drawdown of 91.3%. That is, although Amazon clearly comprises one of the most successful long-term stock market investments in history, an investor who purchased Amazon at the end of February 2000 would have seen their initial investment drop, at one point, to less than nine cents on the dollar.
Microsoft
Microsoft created $1.075 trillion in shareholder wealth during the most recent 2010-2019 decade, which is the second highest firm/decade total (behind only Apple’s 2010-2019 outcome) and $776 billion in shareholder wealth during the 1990-1999 decade. Yet between November 1992 and July 1993 Microsoft shareholders experienced a drawdown of 20.54%.
Citigroup
Citigroup generated shareholder wealth of $137 billion during the most recent decade (69th on the list), but Citigroup shareholders endured a 97.0% drawdown from December 2006 to February 2009 of the prior decade.
There are numerous, numerous examples regarding the drawdowns experienced by investors in firms whose stocks turned out to be excellent investments. On average, the 100 most successful company's in terms of shareholder wealth creation were associated with a drawdown of 51.6% during the prior decade.
The central lesson can be stated succinctly. "The most successful company investments in terms of wealth created for shareholders at the decade horizon also involved very substantial peak-to-trough drawdowns. Even those investments that are the most successful at long horizons typically involve painful losses over shorter horizons". - Hendrik Bessembinder (July 2020)
Apple
Apple generated $1.64 trillion in shareholder wealth between January 1981 and December 2019, more than any other publicly-traded US firm since 1926. Of this total, $1.47 trillion was accrued during the most recent 2010-2019 decade. Yet, on no less than three occasions, Apple shareholders experienced drawdowns that exceeded 70%. These included a drawdown of 74.0% from May 1983 to August 1985, a drawdown of 79.7% from February 1992 to December 1997, and a drawdown of 79.2% from March 2000 to March 2003. Within the last of these, Apple experienced a drawdown of 75.6% during the short four-month period August 2000 to December 2000.
Amazon
Between June 1997 and December 2019 equity investments in Amazon improved shareholder wealth by $865 billion, which is the fourth highest total among the 26,168 firms that appear in the CRSP common stock database since 1926. Of this total, $632 billion accrued during the most recent decade. Yet, between February 2000 and September 2001 Amazon shareholders experienced a drawdown of 91.3%. That is, although Amazon clearly comprises one of the most successful long-term stock market investments in history, an investor who purchased Amazon at the end of February 2000 would have seen their initial investment drop, at one point, to less than nine cents on the dollar.
Microsoft
Microsoft created $1.075 trillion in shareholder wealth during the most recent 2010-2019 decade, which is the second highest firm/decade total (behind only Apple’s 2010-2019 outcome) and $776 billion in shareholder wealth during the 1990-1999 decade. Yet between November 1992 and July 1993 Microsoft shareholders experienced a drawdown of 20.54%.
Citigroup
Citigroup generated shareholder wealth of $137 billion during the most recent decade (69th on the list), but Citigroup shareholders endured a 97.0% drawdown from December 2006 to February 2009 of the prior decade.
There are numerous, numerous examples regarding the drawdowns experienced by investors in firms whose stocks turned out to be excellent investments. On average, the 100 most successful company's in terms of shareholder wealth creation were associated with a drawdown of 51.6% during the prior decade.
The central lesson can be stated succinctly. "The most successful company investments in terms of wealth created for shareholders at the decade horizon also involved very substantial peak-to-trough drawdowns. Even those investments that are the most successful at long horizons typically involve painful losses over shorter horizons". - Hendrik Bessembinder (July 2020)
