The Illusion Of Successful Investing

The chart below, which shows the price performance of Google (NASDAQ: GOOGL) shares since the company went public, likely provokes a familiar reaction: Wow, I wish I got in early. Since going public in 2004, Google shares have gone from $85 to about $1,325 for a gain of 1,458%.*

However, the chart also offers two lessons about what it takes to be a successful stock market investor: patience and conviction.

Patience: The left endpoint of of the red line shows the price of Google shares in October of 2007 was $354, while the right endpoint shows that in September of 2012 the price of Google shares was also $354. That means investors saw no price appreciation for five years. Five years was more than half the time Google was a public company. That amount of time is 12% of your working years to save for retirement. To earn the 1,458% return Google has offered since going public, investors had to be very, very patient.

Conviction: Between July of 2018 and December of 2018, Google shares fell from $1,238 to $979, as shown by the orange line, for a total decline of 21%. A 21% loss of value over five months is a stunning challenge to any investor’s conviction. A worse decline, shown by the brown line, occurred between October of 2007 and November 2008, when shares went from $354 to $130 for an astonishing loss of 63% percent of its value.

Stock performance charts are deceptive. The eye tends to look at the differential between the left endpoint and the right endpoint. Further, arithmetically, what are likely larger numbers on the right hand side, tend to make the declines in earlier years look smaller simply because those numbers are smaller. However, when looked at carefully, charts tell a tale of patience and conviction among investors who stayed in for the long haul.

David R. Evanson is a financial journalist in Philadelphia.

*Wilhelm, Alex, (July, 2017). A look back in IPO: Google, the profit machine. TechCrunch. Retrieved December, 2019