Can We Predict Stocks That Will Genuinely Deliver 25 Returns?
Investors often dream of finding a stock that will deliver stunning returns, such as 250 times the original investment. While such stories are captivating, the reality of achieving such extraordinary growth is much more complex and less predictable. This article delves into the challenges and opportunities of identifying high-growth stocks, focusing on practical approaches to increase your chances of success in the long term.
Understanding the Limitations of Predictive Analysis
Many factors limit the accuracy of predictions about future stock performance. For instance, the 30-year timeframe mentioned in your scenario is highly unrealistic for most investors. Stock investment requires consistent, long-term commitment, and the return expectations should be realistic. Historically, debt investments typically yield 4-6% returns, which is considered excellent when compared to stock market averages.
When investing, the focus should be on the power of compounding over time. Many investment platforms and financial advisors highlight the principle of “invest this much for 15 years and get this much money,” emphasizing the importance of consistency and long-term planning. Legislative savings schemes, such as Public Provident Fund (PF) savings, are prime examples of how consistent contributions grow over years.
The Reality of Finding 25 Stocks
Despite the allure of finding a stock that can deliver such extraordinary returns, predicting a specific stock's performance is nearly impossible. Identifying a stock that can achieve 25 returns would, in fact, require a miracle.
A study of the US markets over the past 124 years has revealed that major cyclical rises in the market have often doubled four times. Historically, the average time for these stock market rises has been around 4.5 years per doubling. However, you are asking for a scenario where stocks double every 2.25 years, an exceptionally high rate of return.
Out of the approximately 15,000 stocks listed on the NASDAQ and NYSE combined, finding a stock that achieves 25 returns in this time frame is highly improbable. In each of the three major market cycles over the past 124 years, the number of stocks that achieved this level of growth is counted on one hand, and it typically took the whole 18-year period to do so.
Key Takeaways and Practical Suggestions
Instead of searching for a miracle investment, it is far more practical to look at companies with a proven track record and invest in them for the long term. Holding onto these usually credible companies can provide substantial capital appreciation.
My own experience with the US markets aligns with this advice. After the 22% dip in December 2018, which marked potential start of a long riser cycle, I invested in a portfolio of 46 stocks. Of those, 13 have already doubled and one has tripled. While I am hopeful that one of these stocks may achieve the 25 growth, I acknowledge that the probability is extremely low.
Some large tech giants like Amazon (AMZN), Facebook (FB), Google (GOOG), NVIDIA (NVDA), Apple (AAPL), and Tesla (TSLA), while successful, are also unlikely to double 8 more times in less than 20 years. Many high-growth companies are yet to go public and are not yet in the public consciousness.
One stock that was close was CHGG, but it has already experienced four doubles, so it is a later stage in its growth cycle. Zoom, while successful, faces stiff competition from free communication tools from Google and Microsoft. Telehealth companies like Teladoc and DocuSign, although promising, are also well out of the start phase.
The reality is that long-term investments require perseverance, patience, and a focus on consistent growth rather than overnight miracles. The power of compounding is your greatest ally, and maintaining a diversified portfolio can help dampen the risks associated with individual stock volatility.
So, while dreaming of 25 returns can be exciting, the focus should remain on realistic expectations and long-term strategies that can maximize your returns over time. Happy investing!