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The Reality of being a Long-Term Investor in a High-Growth Business
Mercado Libre ($MELI) has regained its rightful position as our second largest individual stock position behind Apple ($AAPL). This excludes our Market Index ETFs which deservedly command the bulk of our portfolio allocation (around 70%). Mercado Libre accelerated past our large, but snail-paced position in Coca Cola ($KO) which we consider to be a terrific dividend stock. Apple ($AAPL) continues to hold top spot in our individual stock portfolio by a country mile.

This chart shows the realistic journey of a long-term "buy-to-hold" investor in a high-growth stock like $MELI. Even if you focus on the execution of the business and the growth trajectory that lies in front of it, the stock price will still take you on a rollercoaster ride. The onset of the Covid pandemic saw the stock retreat by almost 35%, but the worst was yet to come. From September 2021 to June 2022, the long-term investor had to endure a 68.6% drawdown. This is painful for any investor with a reasonable holding in this stock. But past experience can be reassuring and this is the advantage of a long-tenured investor. We've lived through similar drawdowns with Amazon and Coca Cola.
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From current levels, the stock price needs to rise another 30% to recapture its historical highs of January 2021. Given time, we're pretty confident this will happen and the stock will rise even higher over the long term. The growth opportunity for Mercado Libre continues to be lucrative and it's there for the taking provided they can execute.

If we had posted this chart on Twitter/X, we know some snarky person is going to tell us we should have traded the stock to save ourselves the paper drawdown. Yeah ... easier said than done. Timing your position in and out of a stock to capture the bulk of the rise while avoiding the declines is very, very difficult to do consistently. There's a reason why trader survival rates are so poor (reportedly less than 1% after 5 years).

The job of a long-term investor is to remain focused on the business and the opportunities that lie ahead of it. We can't do anything about the stock price, except maybe buy more whenever it dips when our business thesis is still intact. The stock price of a good business will unavoidably fall when fear grips the general market and earnings multiples contract. The stock price can also rise well above any justifiable earnings multiple in times when the market is exuberant. This is the cross we bear as long-term investors. We focus on holding good businesses, the stock price will act on its own accord. Over the long-term the stock price will eventually find its rightful level to reflect the growth of the business.

Jazzi Young's avatar
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