Investors often hesitate to buy stocks after big gains, but data shows that companies like Guardant Health, Netflix, and Apple have delivered strong long-term returns even after sharp run-ups-if investors resist the urge to sell during downturns
Many investors struggle with the decision to buy a stock that has already doubled or surged well past its previous highs. The instinct is to wait for a pullback, but that opportunity often never comes. According to The Motley Fool's Rule Breakers Team, one of their most debated strategies is to seek out stocks that have already demonstrated significant price appreciation before making a purchase. This approach, rooted in the research of William O'Neil and adopted by David Gardner, challenges the conventional wisdom of buying low and selling high.
O'Neil, founder of Investors' Business Daily, found that many of the market's biggest winners were stocks that had already posted strong gains before continuing to outperform. While most investors focus on stocks near their 52-week lows, O'Neil's research suggested that the best opportunities often lie among those hitting new highs. Gardner adapted this insight, emphasizing that buying high can pay off-if investors are willing to hold through volatility and avoid selling at the first sign of trouble.
Case Study: Guardant Health's Volatile Ride
Guardant Health, a cancer diagnostics company, illustrates the risks and rewards of this strategy. The company went public in October 2018 at $19 per share. Six weeks later, Rule Breakers recommended the stock at $37.16-nearly double its IPO price. By February 2019, the stock had climbed to $48.87, prompting another buy recommendation. However, after peaking above $180 in early 2021, Guardant's shares fell sharply, reaching a low of $15.81 in April 2024. Despite steep drawdowns of 57% and 68% on those early positions, the team resisted the urge to average down or sell.
Instead, they bought again at $30.50, nearly double the recent low, as the company's science and business prospects remained intact. In May 2024, an FDA advisory panel gave a positive review to Guardant's Shield blood test for colorectal cancer screening, and the FDA granted approval in July. The June 2024 recommendation has since returned 430%, far outpacing the S&P 500's 48% gain over the same period. The 2018 and 2019 picks have also delivered strong long-term returns, with the 2018 position more than quadrupling and the 2019 pick more than tripling. Notably, the largest winner was the purchase made after a 93% run-up.
Holding Through Drawdowns
While buying high can lead to outsized gains, it also exposes investors to significant volatility. Guardant Health's story is not unique-major companies like Netflix, Apple, and Amazon have all experienced multiple drawdowns of 50% or more from previous highs. For example, Netflix has endured five such declines since its IPO, with each followed by a new all-time high and subsequent gains ranging from 55% to 725% in the year after each drop. The worst came after the Qwikster incident in 2011, when Netflix shares fell 83% from their peak, only to recover and reach much higher levels over the next decade.
Guardant's experience also highlights the cost of holding through downturns. A strict sell rule, such as O'Neil's 7% stop-loss, would have closed out both early positions in 2021, missing the subsequent recovery. As of September 2025, Guardant faced new challenges, including weak data on its next Shield version and a $416 million loss against $1.7 billion in debt. Even so, the 2019 pick remained about 15 percentage points ahead of the S&P 500 index after seven years, underscoring the long-term potential of holding quality companies through volatility.
Why Past Performance Still Matters
The Rule Breakers approach does not rely solely on price momentum. Gardner emphasizes that a rising stock price should be just one of several traits investors look for, alongside strong business fundamentals and growth potential. When a company checks all the boxes, a history of price appreciation should not be a reason to avoid buying. Excellent companies often double and then double again, and investors who dismiss them because of past gains may miss out on future growth.
For context, the S&P 500 index returned approximately 48% from June 2024 to July 2026, while Guardant Health's Shield-related recommendation delivered a 430% return over the same period, according to reporting by The Motley Fool. Guardant's revenue reached $982 million in 2025, with Shield's quarterly revenue rising from $5.7 million to $41.6 million. In July 2025, UnitedHealth Group agreed to cover the Shield test, expanding its potential reach to around 100 million additional people.
Understanding the difference between short-term price swings and long-term market cycles is crucial for investors considering this strategy. While some may be tempted to wait for a correction after a stock has run up, history shows that many of the market's biggest winners continue to outperform after reaching new highs. For a deeper look at how market cycles and investor behavior shape long-term returns, see this analysis of bull and bear market dynamics. Ultimately, the decision to buy high and hold requires discipline, a focus on fundamentals, and a willingness to accept volatility as part of the investing process.
Investors should recognize that past price appreciation is not a guarantee of future performance, but it can be a sign of underlying business strength and market leadership. The key is to combine this trait with a thorough evaluation of the company's fundamentals, industry position, and long-term prospects. While the temptation to sell during downturns is strong, history suggests that patient investors who hold through volatility may be rewarded over time-provided they choose companies with durable competitive advantages and robust growth potential.
