Buy-And-Hold Is Harder Than It Looks

There are two anniversaries this month that enthusiastic tech investors might remember.

The first is the 29th anniversary of Microsoft’s launch of Windows 3.0. The second is the 17th anniversary of Netflix’s IPO.

On the surface, these two events have absolutely nothing in common. But I couldn’t help but think about what it would have been like to have owned both stocks continuously all this time.

The truth is, I think it would have been painful.

The launch of Windows 3.0 was the beginning of Microsoft’s 90’s successes, which is surely one of the greatest 10-year runs for a stock in history. On a split-adjusted basis, MSFT was under $1 in May 1990. It didn’t stop going up until December 1999, when it hit a new all-time high of $59.97.

We all know what happened next. The dot-com crash brought valuations back down to Earth, and at one point during the depths of the financial crisis, shares of Microsoft were down 75% from their highs. It took the stock until October 2016 to break $60 for the first time (again, on a split-adjusted basis).

That’s a 17-year window with zero gains. In that same period, the S&P 500 was up 47 percent.

And yet, those who held the entire time have been rewarded handsomely. In the ensuing three years, the stock is up 113%.

Netflix has a similar story. On a split-adjusted basis, the stock opened for trading at $1.16 on May 23, 2002. NFLX breached $5 for the first time in January 2004, but it took more than six years for it to break $6. Today the stock is up more than 30,000% from that opening trade.

The Microsoft and Netflix examples are both extreme, but they go to show just how difficult holding stocks over the long term can be. Buy-and-hold sounds easy on paper, but I doubt very many investors would have been able to stomach the extended periods of underperformance.

If you’re going to pick stocks in your portfolio, this is going to be par for the course. There was no way to know in 2013 that these companies would go on to become two of the darlings of Wall Street for the rest of the decade, just like there’s no way to know which of today’s dogs will be tomorrow’s stars.

Of course, I guess that’s kind of the point.

The author is long Microsoft and Netflix in his 401(k)

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