One of the first things to know about equity investing is that stocks go up as well as down, and that even the most successful ones never go up in a straight skyward trajectory.
That’s why investment firms that cater to inexperienced retail investors are mandated to ask their customers a series of questions in order to assess their suitability and risk tolerance before they invest, in order to make sure that stock investing is a good idea for them. If a Nutmeg customer, for example, says they want to access their money within three years, they’re advised not to invest in stocks at all.
Because, when you’re considering putting your precious life savings into the stock market, it’s important that you don’t imagine the returns will look like this:
That’s from an article called “Best-performing Stocks of the Century”; subhead “If You Had Invested $100 in 2000, What Would You Have Today?” (h/t Tadas Viskanta of Abnormal Returns for calling our attention to it via Twitter).
Why didn’t they just show the share price movements as they actually were, with all their peaks and troughs? The smoothing out of the companies’ valuations is surely rather misleading for the retail investors that the website, How Much — tagline “Understanding Money” — is aimed at.
Also the article states that Monster Beverages, the top-performing stock since 2000, has increased 62,444 per cent. But that of course doesn’t mean that a $100 investment would have become $62,444.
For a start, they’ve got the calculations wrong — a 62,444 per cent return on a $100 investment would actually be $62,544. But sure, that’s only $100 out. There’s another thing, though, that it’s very important for retail investors to understand, and that thing is called fees. Over a twenty-year period, even a small annual investment advisory fee can really eat into annual returns.
Still, at least there are some more useful charts for inexperienced investors on the website — like this one, which proves that the crypto market is not really that much of a bubble because, well, the derivatives market is worth $532tn (the crypto market is represented by a tiny dot that you can see when you open the full article):