- What exactly is a great company?
- When does a great company stop being a great company?
- Can you tell beforehand when a great company will cease to be one?
- Will you have the conviction to hold on to a "great company" through significant drawdowns?
For some, a good company is one which its stock goes up while you own it, and a horrible company when it goes down. Great companies come and go; each cycle has its fair share of Wall Street darlings that widowed a lot of portfolios years after. In the late 90's when I started in the business, we had Dell Computers, Cisco, Nortel, Lucent, AOL, Eastman Kodak, just to name a few. Before then we had Tandy, Polaroid, the Nifty Fifty.
Your definition of a great company might not always translate to a great stock. Your timing in owning that great company might be off. We can probably agree that AMAZON has been a great company for a long time, and it still is, its stock, on the other hand, has had its moments of greatness and its moments of being an absolute disaster.
Since inception AMAZON is up about 39,000%, unbelievable, however, at one point, it had a 90% drawdown, and throughout its lifetime it has had multiple 50% drawdowns. A dead person probably wouldn't be able to stomach these wild swings. And, more than likely-- at the very moment that you can no longer withstand the pain-- that will be the time that you convince yourself that the company is no longer a "great company," and you sell. What the stock does when you are holding on to it will more than likely be the determining factor in you putting it in the "great company" status.
Since inception AMAZON is up about 39,000%, unbelievable, however, at one point, it had a 90% drawdown, and throughout its lifetime it has had multiple 50% drawdowns. A dead person probably wouldn't be able to stomach these wild swings. And, more than likely-- at the very moment that you can no longer withstand the pain-- that will be the time that you convince yourself that the company is no longer a "great company," and you sell. What the stock does when you are holding on to it will more than likely be the determining factor in you putting it in the "great company" status.
Chart courtesy of @MichaelBatnick
Apple is another great example, a $100k dollar investment in 1980 would've been worth $457,974 by 1992, then $224k in 1993 and $100,486 by 1997. All along one could've argued that Apple was a great company all those years.
Chart by Charlie Bilello
Owning the indices; SP500, QQQ, IWM, allows you to participate in most if not all of the great companies that come public. You won't get the full participation on the way up, but you certainly won't live through gut wrenching drawdowns that are impossible to live through.
My opinion and outlook are subject to change as new information comes in.
Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.
The information in this blog post represents my opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.
The information in this blog post represents my opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
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