What if I told you that you could invest in a stock at a $90 price today and sell it for more than $3000 in 22 years time? You’d probably bite my hand off for such a deal.
That’s exactly what you could have achieved if you invested in Amazon.com (NASDAQ: AMZN) 22 years ago in late-1999 and held the stock till today.
A $1000 investment back then would have turned into more than $33,000 today. The chart above shows the trajectory of Amazon’s stock price over that 22 year period.
It looks like a pretty clean upwards trajectory but the stock price performance was actually anything but smooth. The chart below shows Amazon’s stock price from late-1999 to 2002 just after the dot com bubble burst.
Amazon’s stock price tumbled from more than US$90 to around US$12. Although this was the steepest drawdown, Amazon’s stock price experienced numerous other steep drawdowns over the past 22 years. The chart below shows how far Amazon’s stock was below its all-time high over the past 22 years.
Amazon took close to 10 years to regain its 1999 peak. And even after breaching that peak, Amazon still experienced numerous drawdowns from those peaks, with those drawdowns frequently reaching close to 30%.
This is the harsh reality of the stock market. Stock price rise and fall all the time and even the best companies can experience significant stock price declines along the way.
However, investors who bought Amazon at the highs of 1999, and maintained their long-term focus even after that massive subsequent drawdown in 2000-2002, would still have come out with excellent returns.
Today in 2022, with some stocks experiencing similarly steep drawdowns from their all-time highs, Amazon is a good reminder of how long-term investing pays off.
Instead of focusing on prices today, think about where the stock’s business can be in 10 or 20 years’ time. If you think the business will be stronger and the company will be worth much more, then ignore the prices today and focus on the future.
Note: An earlier version of this article was published at The Good Investors, a personal blog run by our friends.
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Disclosure: Jeremy Chia owns shares of Amazon.
