How Hard is it to Pick Stocks?

2025 AI Outlook: Investing in AI’s Present and Future

Picking stocks that outperform the market is hard. Riding them through the ups and the downs is even harder.

Holding onto big winners in the stock market is difficult because the temptation to book gains is real. We all know how bad it feels to ride a monster only to see gains get cut in half.

If you’re a stock picker, then there is a 100% chance that you’ve had some stocks that you held onto for too long. Assuming that’s the case, then you have that in the back of your brain at all times, constantly telling you to not be greedy. At the same time, you don’t want to sell too early and leave money on the table.

Holding stocks on the way up isn’t easy, but holding them on the way down is even harder. When a winning stock falls, you’ll inevitably feel like, “Ugh I’m a greedy idiot. Why didn’t I sell before? Should I sell now? How low is this going to go?”

Josh opened the show this week by talking about holding big winners. 10 baggers and the such. How much of this is luck, and how much of it is skill?

Obviously, there is a degree of luck involved, but does it take skill to watch your stock get cut in half multiple times along the way to massive gains? I’m not sure “skill” is the word I would use. I would say a strong stomach and mental backbone, for sure. I would also say, and I really don’t mean for this to sound insulting, even though I know it will, that it takes a certain naivety about how the market works. I would say that non-finance professionals are, I don’t know, 10x more likely to buy and hold a massive winner than somebody who works in the industry.

Here’s why I say that. People who work in or around finance are more likely to know how unlikely it is that they’ll pick and hang onto the next Apple or Nvidia. We’re also less likely to view the market as a casino than retail investors are.

We can’t ride big winners because we know too much. I’m mostly sorta kidding. Here’s a story that I think is a decent analogy.

A husband and wife are at a casino. The husband is well-versed in gambling. He knows when to hit, when to split, when to raise, etc. The wife has never played before.

After an hour, she comes over to him. He asks, “How’d you do?”

“I lost $200 playing slots. What about you?”

“How’d you lose $200 playing slots????”

“I don’t know. Is that bad? How did you do?”

“I lost $2,000.”

“You lost 10x more than me, and I’m getting crap for it?”

“Yeah, but I know how to gamble!”

I don’t think I’ll ever get a 10-bagger. I know too much. I read a piece from J.P. Morgan back in 2014 that’s been cemented into my brain.

“More than 40% of all companies that were ever in the Russell 3000 Index experienced a ‘catastrophic’ price loss,’ which we define as a 70% decline in price from peak levels which is not recovered.”

One out of every four stocks has a monster decline from which they never recover. Yeah, no thanks. But there are giant winners. I mean, obviously. So, how likely are you to catch one? JPM says that “7% of companies generated lifetime excess returns more than two standard deviations over the mean.”

All of these excess returners, with a handful of exceptions, I’m sure, have had multiple monster drawdowns. I mean, look at Apple, for example. It's probably the most widely held 10-bagger ever. Apple’s total return over the last decade is 875%, so close enough.

This is about as smooth a ride as you’re ever going to have in a stock that’s performed this well. And still, almost a 40% drawdown, with a few other declines of 30%, and even more declines of 15%.

So, does it take luck or skill to hold onto gigantic winners? Yes.

We always have so much fun with JC. Our fans do, too. We’re up on YouTube, and going forward, we’ll be posting the video on Spotify alongside the audio, Have a great weekend.