Earlier today, I tweeted a joke about the performance of $COH
If u had invested $1000 in Coach in 2006, today u have … $1000. Sometimes, it’s better to buy a bag. $COH
— Ivaylo Ivanov (@ivanhoff) Jun. 4 at 06:50 AM
And yes, I didn’t account for the dividend that Coach paid, but you get my point.
What is more interesting is some of the reactions I received on social media:
Growth stocks: A mug’s game MT @ivanhoff If u had invested $1000 in $COH in 2006, today u have…$1000. Sometimes, it’s better to buy a bag.
— Michael Santoli (@michaelsantoli) June 4, 2014
First of all, let me tell you that I love the fact that people have a disdain towards growth stocks. The recent declines in many cloud, Internet and social media stocks have scared people out of story/momentum stocks. This sentiment is usually a good foundation for future outperformance of this asset class.
For a market approach to work in the long-term, it has to go through periods of underperformance, when most people lose faith in it. It is the law of the market and it applies to both value and momentum.
If your strategy is to buy and hold forever, growth stocks are not for you. Go buy a few boring, dividend-paying consumer staples at a fair price and you will do well over time. It is not an accident that Buffett likes to buy only businesses, which circumstances are not going to change substantially in the next decade. Guess what – if a business doesn’t change too much in 10 years, it is very likely that it won’t do much better than the market itself.
If your goal is to trump the market averages, growth stocks are the place to be.
It is true that many growth names will go up 300-400% in a couple years, only to give back 50% to 90% of their appreciation afterwards. Does that mean that you have to ride those stocks all the way down? Does that mean that you have to look at the glass as half empty? No. If you have a proper exit strategy, you will protect the majority of your profits and then re-invest the proceeds in other emerging growth names.
Some trends last 3 months, some trends last 2 years; others last 10. Eventually, every price trend and every growth story comes to an end. This end could be very different, depending on your exit rules.
