Editor's note: The right investments today could lead to massive returns in the future... Investors have been fleeing the market in droves this year as inflationary pressure and heightened geopolitical tensions have weighed heavily on stocks. And with no clear end in sight to this sky-high inflation and geopolitical conflict, folks are still reluctant to put their money to work right now. But Extreme Value editor Dan Ferris believes that today's volatile market still offers long-term investment opportunities. That's why he says it's paramount for investors to understand which traits signal an investment opportunity with high upside potential... In today's Masters Series, adapted from the December 2021 issue of Extreme Value, Dan reveals the most important characteristics to look for when identifying long-term buying opportunities... details why these traits are so critical... and explains why honing this skill is especially crucial amid today's chaotic market...
The Bessembinder Effect: How to Find and Hold On to the Best-Performing Long-Term Investments By Dan Ferris, editor, Extreme Value Making money in stocks is simple, but it's not easy... First, find stocks with the potential to become exceptional long-term performers. Second, buy them. Third, hold on for the long term, no matter what peaks and valleys surface along the way. It sounds easy enough on paper... But in practicality, what's the best way to find those exceptional long-term performers – the ones you can trust to endure every valley and surpass every previous peak? To answer that, let's start with Hendrik "Hank" Bessembinder. Bessembinder is a professor at Arizona State University. If you've heard Bessembinder's name before, it's likely due to his most famous research paper – a 2018 piece titled, "Do Stocks Outperform Treasury Bills?" Bessembinder's paper has been downloaded more than 40,000 times and cited in more than 40 papers. According to him, just 3% of more than 25,000 listed stocks returned $47 trillion more to investors than Treasury bills produced since 1926. In 2019, Bessembinder conducted similar research on global stocks and found that of more than 26,000 globally listed companies, just 1.3% returned as much to investors as every single Treasury bill combined between 1990 and 2018. Knowing how to identify the few potential great performers out of thousands is clearly a valuable skill. You need to buy them when their share prices fall and hold them for the long term, which, as we know, is more difficult than it sounds. Bessembinder found that the average drawdown of the best-performing global companies since 1990 was 32.5% and that it lasted an average of 10 months. Shareholders of some extraordinary stocks had to endure even larger drawdowns for longer periods of time. Bessembinder used Apple (AAPL) and Amazon (AMZN), two of the best-performing global stocks, to illustrate this point. Amazon fell 93% from its dot-com peak in December 1999 to its dot-com trough in September 2001. Apple fell 79% from its March 2000 peak to its April 2003 trough. You could have bought either Apple or Amazon at any time and at any price along the way, and you'd be holding a huge return today.
| Recommended Link: | |  Market Meltdown 2023 What happens in the coming weeks could make or absolutely break your retirement. That's what history has shown when stocks are falling, inflation is rising, the Fed's raising rates, and economic activity is slowing. But Dan Ferris just stepped forward with an insanely simple solution to protect your wealth. Get the full details here. | | |
Buying Apple at its dot-com era high and holding until today would have made you 135 times your money... Buying Amazon at its dot-com high would have made you 34 times your money. But buying either at its respective low could have made you several hundred times your money... Bessembinder wanted to know how to find stocks with best-performer potential. So, he searched for and determined a few key characteristics that can help investors find those stocks. Investment firm Baillie Gifford summed them up like this... Investing in research and development while still achieving superior growth in returns, scale and profitability is a key characteristic of winning companies. Firms succeed or fail for myriad reasons, but this appears to be must-have. Armed with Bessembinder's insights, we can identify future best-performing long-term investment opportunities. Good investing, Dan Ferris
Editor's note: Being able to identify solid long-term investment opportunities easily will be helpful as we endure this bear market. And it'll be just as important to know how to spot which investments to avoid... That's why Dan recently hosted a presentation where he gave away the names of two stocks that you need to sell immediately. Remember, being in the right positions could be the difference between surviving this bear market and losing every dollar you've spent your life earning... Watch the full replay here. | 
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