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Could I interest you in a 7,195% return over 25.5 years? Skeptical? I will sweeten the pot. The day you bought, it then went on to drop 80% over the next couple of years. I am talking about Amazon. From its internet bubble high, it dropped 80%. Then, during the Financial Crisis it fell 63%.

Here's an excerpt of the letter that Jeff Bezos sent to shareholders when it was down 80%. 

You can click through the above link to read the entire thing.

I can't say that I would have held on through an 80% decline, I don't know. What about a 63% decline when the S&P 500 was down 55% at its worst? In late 2008, one of the few purchases I made was XLY, which has been heavy in Amazon since long before the Financial Crisis so maybe I'd have held AMZN down 63% in that scenario. FWIW, I did not sell tech, which is something of a cousin to Amazon. 

The point to take away from the huge declines in Amazon stock is to maybe not freak out when a stock drops 20%.

The blue line is a stock I have owned for clients back to when I first started at YourSource Financial in 2004. The cumulative return has been 1797% versus 789% for the S&P 500, per Testfol.io. I did shave the position down once or twice along the way.

Look at the drawdown chart. It did worse in almost every drawdown over the last 21 1/2 years. Almost every one! It only lagged the S&P 500 in six individual years but the years it did lag were brutal. In 2018 it was down 19% versus down 4.5% for the S&P 500. In 2023 it was down 12% versus a gain of 26% for the S&P.

No one can get them all correct but if you put in some effort to understand the companies you own, the odds of making a panicked mistake go down.

Anyone using sector funds or thematic funds, an entire sector isn't going to zero. There's no broad based index like the S&P 500 or the Russell 2000 that is going to go to zero. Something I've been saying for many years is that there no question that the S&P 500 will hit 2x whatever the price level is today. The questions are how long will it take and might it go down 40% before hitting 2x the price level is today. Once you really accept that, navigating declines becomes easier.

I'm not a huge fan of doing a lot of selling to get defensive. I think it makes more sense to increase exposure to negatively correlated assets. That approach removes guess work. Oh, you just sold yesterday? What if that was the bottom? 

I am differentiating selling a stock where something related to the company changes, that's different. This post is about not panicking when the broad market gets hit. 

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