Let’s get this out of the way up front: yes, it’s fun to look back and imagine you were the most brilliant investor of all time. What if, many years ago, you had the foresight to pick the 10 best-performing U.S. stocks of the last 25 years. We all have those thoughts, and for some, they may be reality.
But for most, those “if only” moments – if only we had bought Apple in 2003, held onto NVIDIA, or hadn’t sold Amazon – can feel more punishing than helpful. The longer you’ve been an investor, the more the narratives can pile up in your mind: perfect trades we didn’t make, or perfect portfolios we would have made. If we only knew then what we know now.
But even with perfect foresight back in the year 2000, it still may not have been as easy as you think. There would still have been periods where you doubted yourself and times when clients would have questioned your ability and process. And in all likelihood, those difficult conversations with clients would have still resulted in their departure. Because even the best-performing portfolio comes with stretches that are hard to sit through. Investing isn’t hard because we lack the answers; it’s hard because we have to stick with them when they don’t work for a while.
Looking back 25 years, you probably wouldn’t have guessed all 10 companies that would go on to deliver the highest returns in the U.S. market. Some are obvious in hindsight, iconic businesses that became household names and rewrote their industries. Others were exquisite for entirely different reasons, propelled by a mix of timing, trend, and a healthy dose of idiosyncratic luck.
But if you had managed to pick these ten names, equal weight them, and most importantly, hold them through the noise, you’d have ended up with a portfolio that’s nearly impossible to believe. Below is the Almighty Portfolio, and almighty it is. The cumulative performance chart doesn’t just show outperformance over the S&P 500; it shows dominance. That’s the power of perfect hindsight... and extreme conviction.
Imagine having the ability to drop the below portfolio metrics in a pitch deck. You would have posted a 29.5% compound annual growth rate and paired it with a Sharpe ratio that is almost 3x higher than the S&P 500. You would have significantly outperformed Warren Buffett, a man whose nickname is literally “The Oracle” in the investing world. If you posted those numbers, you would be walking down Wall Street with your feet barely touching the pavement.
That’s a lot of “woulda, coulda, shoulda.” Having the faith to maintain those holdings would have been incredibly challenging. What the above cumulative performance chart forgets to visualize is the number of drawdowns. In total, there were 11 separate drawdowns worse than -20%. Including one that shaved 61% off the portfolio.
Explaining that to clients in real time would be absolute hell. “Trust me, Monster Beverage is going to be huge. Sure, it’s down 50%, but…” The top 10 is littered with moments like that, especially during the ‘00s.
So, if we consider adding some risk metrics to that pitch deck, a much different narrative starts to build, especially if you’re experiencing it in real time. This is the part most people forget. Great performance doesn’t come easy. It comes with gut-wrenching volatility, second-guessing, and a lot of client phone calls that start with “What are we doing here?”
The Almighty Portfolio spent long stretches underwater, constantly retesting faith. If you truly visualize yourself owning this portfolio, it doesn’t feel like outperformance; it feels like volatility. Like risk. Like maybe you missed something.
This whole exercise isn’t about making anyone feel bad. If anything, it’s about cutting ourselves some slack and being a bit self-deprecating. Hindsight bias is undefeated. Every great chart makes you feel like an idiot, but investing is never that clean. Even the best-performing portfolios test conviction constantly.
The real takeaway is that process matters more than perfection. Because even with perfection, you still need the stomach to see it through.
This lends credence to the idea that backtests make everything look easy. But they’re built on perfect information, zero emotion, and no client conversations. That’s not real life. You can’t backtest conviction, and you definitely can’t backtest behaviour. This is why we don’t put too much weight on portfolio backtests; they’re helpful context, but they’re not the foundation of how we invest.
Final Thoughts
Most tend to think that performance solves everything. But it turns out, even the best portfolios can lose the room. And once that happens, it doesn’t matter what the long-term chart says. What looks great on a back test can be nearly impossible to live through in practice.
So next time you’re dealing with a tough stretch in a portfolio or a client questioning a decision, remember that even the Almighty Portfolio would’ve gotten fired. The industry celebrates outcomes and overlooks how hard they were to achieve.
— Brett Gustafson is an Associate Portfolio Manager at Purpose Investments
Sources: Charts are sourced to Bloomberg L.P.
The content of this document is for informational purposes only, and is not being provided in the context of an offering of any securities described herein, nor is it a recommendation or solicitation to buy, hold, or sell any security. The information is not investment advice, nor is it tailored to the needs or circumstances of any investor. Information contained in this document is not, and under no circumstances is it to be construed as, an offering memorandum, prospectus, advertisement or public offering of securities. No securities commission or similar regulatory authority has reviewed this document and any representation to the contrary is an offence. Information contained in this document is believed to be accurate and reliable, however, we cannot guarantee that it is complete or current at all times. The information provided is subject to change without notice.
Commissions, trailing commissions, management fees, and expenses all may be associated with investment funds. Please read the prospectus before investing. If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. Certain statements in this document are forward-looking. Forward-looking statements ("FLS") are statements that are predictive in nature, depend on or refer to future events or conditions, or that include words such as "may," "will," "should," "could," "expect," "anticipate," intend," "plan," "believe," "estimate" or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained in this document are based upon what Purpose Investments and the portfolio manager believe to be reasonable assumptions, Purpose Investments and the portfolio manager cannot assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on the FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed, that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.