Expectations are Hard
Say what you will about social media, but it has its days. One of these, for example, was December 4, 2023, when @ajb_powell reposted what he called the “GOAT [greatest of all time] 2020-1 bubble thread.”
That post (though it would have been a tweet back then) was from @BrianFeroldi. He had asked the world way back in 2021 to name a company that was worth less than $10B then but would be worth $500B or more in a few decades. Having received 710 answers, he proceeded to list “20 top stocks that have 50x+ potential.”
Acknowledging that it’s only been 2.5 years and not a few decades, the results are still, well, not good. Not a single one of the stocks listed has gone up since then, and the average return is negative 76%. In other words, if you’d invested $100 in this basket of stocks, it’d be worth $24 today. Incredibly, the best return of the group is -31%, and the aggregate market value of the 20 stocks declined from $133B to $36B. For context, the market is up 15% at the same time these companies destroyed almost $100B of value.
This isn’t to take a shot at Brian. He’s a friend and these were crowdsourced ideas. Rather, it’s just to show (1) what an incredibly speculative fervor the world was in not so long ago and (2) how difficult it is for companies to meet the high expectations that get attached to high valuations.
Responding to @ajb_powell’s post, @TheStalwart said that it reminded him of the book 100 Best Internet Stocks to Own by Greg Kyle. And I thought the same thing!
A classic, published at the height of the dot-com bubble in 2000, 100 Best Internet Stocks to Own sought to identify (shocker) the 100 best internet stocks for investors to own. And 15 years ago, when I worked in public markets, my colleague Brian Richards and I decided to look back and see how those stocks had performed. I won’t bury the lede:
Had you invested $1,000 in each of Kyle’s 100 Internet names back on April 20, 2000, and held them through September 2007, your $100,000 investment would have turned into…$37,814. That’s a total return of negative 62%...You were more likely to pick a company that would go bankrupt (18) than you were to pick a company that simply increased in price (13)!
The lesson is that the more you pay for something, the more above average it has to be to pay off, but that most things (by definition) aren’t sustainably better than average. Of course, pockets of people forget that every few years and that is what it is and will be.
-Tim
