Nvidia has recently emerged as a shining example within the investment community, often being heralded as the latest “10-bagger,” a colloquial term that symbolizes stocks which grow tenfold in value. However, this impressive accolade comes with an essential disclaimer: the journey to achieving such astronomical returns is fraught with volatility and risk. According to research conducted by Trivariate, Nvidia’s meteoric rise is accompanied by significant downturns that test the mettle of even the most seasoned investors.
Adam Parker, the founder of Trivariate Research and a former equity strategist at Morgan Stanley, has shed light on the inherent risks that come with seeking out dramatic investment returns. His analysis of 84 previously identified 10-baggers reveals a sobering reality: the average stock that reaches this status experiences a drawdown of approximately 48%. In essence, for every significant gain, there is an almost inevitable period of decline. During these downturns, investors can expect to endure an average period of 114 days of turbulent market conditions. Parker’s assertion that “no pain, no gain” serves both as a mantra and a warning for those chasing the next big investment.
To compile these insights, Parker’s methodical approach involved scrutinizing stocks with market capitalizations exceeding $2 billion and an average daily trading volume of at least $30 million over a 25-year timeframe. By focusing on these established criteria, he identified stocks that had experienced the incredible feat of increasing tenfold. In doing so, he presented a clear portrayal of the stocks that have proven themselves in challenging market conditions, along with records of their respective downturns.
Nvidia’s jaw-dropping increase of over 1050% between 2018 and 2023 is a quintessential example of this phenomenon. However, the reality wasn’t all smooth sailing. During its ascent, Nvidia faced a prolonged pullback lasting more than 220 days, during which the stock lost as much as 66% of its value. Similarly, Shopify experienced a more restricted decline of around 41% over just 18 days in 2020, despite rising over 3500% during its growth phase.
Conversely, the electric vehicle titan Tesla stands as another captivating case. Though the company saw its stock plummet by 50% over a staggering 360 trading days, it ultimately realized a 1050% gain from 2012 to 2017. Such stories illuminate the market’s unpredictable nature and showcase that maintaining faith in one’s investment during downturns may be just as critical as recognizing potential upsides.
For investors eagerly pursuing the allure of 10-bagger stocks, the message is clear: expect volatility and prepare for the psychological challenges that accompany a significant drawdown. The allure of exceptional returns comes with inherent risks, which can lead to substantial temporary losses. Ultimately, success in this arena requires not just the right stock picks, but also a mindset geared towards resilience and patience through turbulent waters. A delicate balance of optimism and caution will serve investors well as they navigate the complexities of stock market investing.