July 23, 2024
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Don’t Fall for Misleading Investment Returns – The Truth Behind Cherry-Picked Data!

On June 29th, 2007, Apple introduced the world to the first iPhone, pricing the 4GB model at $499.

But what if, instead of buying that groundbreaking device, you had invested $500 in Apple stock on that same day? Today, that investment would be worth an astonishing $29,079.14. This translates to an impressive annual growth rate of 27.02%.

(Source: Stockchoker, utilizing Yahoo! Finance data)

To put this into perspective, if you had chosen instead to invest in SPY, an S&P 500 ETF, you’d have $2,519.14 today. This, too, reflects a solid performance with an annual growth rate of 9.99%, navigating through various economic ups and downs.

While impressive, the returns on SPY simply pale in comparison to Apple’s phenomenal growth.

It’s common to see such comparisons to encourage picking individual stocks. However, these examples often lack counterbalance with examples of less successful investments.

Consider this: can you name the ten largest companies by market cap in 2007? Here’s the list:

  1. Exxon Mobil
  2. General Electric
  3. Microsoft
  4. Citigroup
  5. AT&T
  6. Bank of America
  7. Procter & Gamble
  8. Walmart
  9. Pfizer
  10. Altria Group

(For reference, Apple was 33rd on that list.)

Curious about what $500 invested in these companies would be worth today?

Company Total Return Annual Rate of Return
Exxon Mobil $1,190.03 5.24%
General Electric $688.43 1.90%
Microsoft $10,516.37 19.64%
Citigroup $82.72 -10.05%
AT&T $767.62 2.56%
Bank of America $597.55 1.05%
Procter & Gamble $2,255.05 9.27%
Walmart $3,040.85 11.21%
Pfizer $1,133.42 4.94%
Altria Group $2,940.17 10.99%
*Note: The Citigroup return is particularly dismal.

Out of these, only Microsoft came close (a generous interpretation) to Apple’s incredible return, yet it still yielded just half of Apple’s returns.

For an even more extreme example, imagine investing $500 in Nvidia back in 2007. Today, that investment would be worth a staggering $107,330.59, reflecting an annual growth rate of 37.17%! But back then, Nvidia shares were priced at just $0.69 each. It wasn’t until 2016 that the stock even broke the $1 mark.

How bananas is this chart?

In 2007, Nvidia was ranked 640th on the Fortune 1000. Betting on such a company back then seems almost implausible, and assuming that a stock-picking service or investment advisor could have led you there is even more far-fetched. Incredible returns like these are usually outliers, dependent on companies that, at the time, very few saw coming.

Remember, it’s much easier to identify market winners after the fact. 🤣

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