How does an investment that returned 30% per year sound?

That is exactly what the Spiegel family got from their investment in a 1982 Jean-Michel Basquiat "Untitled" neo-expressionist painting of a skull. Jerry and Emily Spiegel paid $19,000 for the painting back in 1984 and sold it last month at auction for $110,487,500 to Japanese billionaire Yusaku Maezawa. The transaction was a record for a work of art by an American artist as well as any artwork created after 1980 (1.).

Is a 5,800% return (30% per year) over 33 years not good enough? Or does the art market seem too hard to access? How about a stock that has delivered better than a 61,000% return or 38% per year for the last 20 years?

It just so happens Amazon.com Inc. celebrated its 20th birthday as a publicly traded company this past May, AND it is the best performing stock in the S&P 500 Index since May of 1997. Its amazing 38% annualized return since then is better than the S&P's 7% return and Apple Inc.'s 32% return over the same period.

If an investor owned Amazon on the day of its initial public offering and continued to hold the position through today, he would have endured a number of brutal drawdowns that would have tested his mettle. The first — and the most difficult — was after the "dot.com" bubble burst in 2000. The stock fell over 97% from its 1999 peak and did not eclipse that peak again until 2007.

Shortly after hitting the new high in 2007, and when the investor finally got back to even from the prior peak, there was the global financial crisis in which that investor would have lost almost 70% of the stock's value at the end of 2008. Continuing to hold the stock in the clenching teeth of that bear market would require nerves of steel!

If the investor survived and continued to hold the stock, he then would have been forced down a gauntlet of no less than four periods where the stock went down around 30% from prior peaks as shown in the chart below:

Nerves of steel, indeed!

Both the Basquiat artwork and Amazon.com stock are truly amazing examples of long-term investing and wealth creation. What goes without saying is that the only way an investor can realize these types of returns is by having the emotional fortitude to hold these investments through thick and thin over the long-term.

 

1. Sotheby’s
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