We’ve all seen the clickbait headlines: if you’d bought R10,000 of some or other stock a decade or two ago you’d now have millions. The right response to those is just to shrug — without a time machine it’s a useless data point.
Nevertheless, there is an important lesson: investing is less about finding the next 100-bagger and more about the powerful force that is time.
Also, one of the beauties of investing is that while a share we buy can go to zero with a 100% loss, the upside is completely uncapped; given time, a great share can become a huge winner, just like those clickbait headlines trumpet.
The problem is that we often think that a big winner will be found in some obscure corner of the market — a small cap with some magical technology that will rise from penny stock status and make us rich.
But the truth is that finding the stock is often not the hard part; it’s the holding on.
Take Shoprite*. It sells groceries, about as boring a business as you can get. In 2005 it was trading below R10 a share; it’s approaching R300 today. The clickbait headline would be: “If you’d invested R10,000 in this boring retailer, you’d have R300,000 now”.
Admittedly, this is not quite as exciting as the millions the more shouty headlines mention. But it shows the real secret to investing long term: holding.
No investment only goes up at speed over the long term. Sometimes it booms, sometimes it dawdles. We need to have deep conviction on the share (and recheck our research) and hold regardless of the short-term moves, as long as the company remains quality.
Some might argue that the better Shoprite trade would have been to sell at R150 in 2013 and put the money into the next exciting option. But this is contrary to the long-term nature of investing; you will likely miss out on the truly awesome returns.
Twenty years ago, Capitec* was trading at just over R10; now it’s at about R3,500. Your R10,000 is R3.5m.
But even Capitec had periods of going nowhere, with four sell-offs of over 40% in the past 20 years. There were short-seller reports, new low-cost banking entrants and always the worry that the stock was expensive and the bank at risk of serious credit defaults. Yet here we are: a 350-bagger.
Quality and a long-term mindset deliver for investors. We just need to be prepared to sit back and wait, even when nothing good is happening to the share price.
The writer holds shares in Shoprite and Capitec
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