Key Strategies Learned From A Lifetime Of Investing
Inside today’s Daily Journal…
Essay: 8 Lessons From 30 Years In The Market
Big Tech goes all-in on data centers
Alphabet and Amazon get a sweetheart deal
ExxonMobil reports a strong quarter
Chart Of The Day… Apple
Today’s Mailbag
Editor’s note: Today, Porter is turning the Daily Journal over to Emmet Savage – Emmet is chief investor and co-founder of the research firm MyWallSt. He has been involved in the stock market for more than two decades, with an independently proven annual return in excess of 24% for the last decade – more than triple what the S&P 500 returned.
Recently, Porter traveled to Ireland and sat down with Emmet to uncover how he explains his success. Watch their exclusive interview here… It’s a conversation you don’t want to miss.
Here’s Emmet…
If time in the market beats timing the market, my three decades of experience should hold some weight.
In 1996, a week after my final university exam, I started my first full-fledged permanent job, a role that kept me in front of a computer screen all week long. My interest in stock investing was well-established at that stage, but the internet was in its infancy. This alignment of my passion and access to a revolutionary new tool marked the beginning of a new era: with little effort, I could keep an eye on the stock market.
Six months later, in early 1997, Yahoo! Finance was born, and The Motley Fool became available outside the U.S. Around the same time, I opened my first online brokerage account and, from that point on, transferred all of my monthly savings to the U.S. for investment.
Jumping forward, and by the close of 1999, Dell’s 10-year share price had increased 1,600-fold.
I couldn’t believe it: the very brand of computer I was glued to all day had generated unprecedented returns. Between this realization and the excitement of the dot-com bubble, which I was caught up in, I was entirely captivated… an investment in just one up-and-coming Dell would change my life. I embarked on a mission to identify and understand the characteristics of businesses poised for hypergrowth – and committed to investing in as many of them as possible.
Subsequently, when the bubble brutally popped, unlike the majority who suffered severe losses, I kept going. Here are eight lessons I have learned along the way.
Most world-changing companies stay flat for years or decades before massive growth. Amazon (AMZN) had a 10-year flat period from 1999 to 2009, but a total return from its early days of 275,000%. Apple (AAPL) had a flat period: 1980-2000, but a total return of more than 200,000%. Microsoft (MSFT), flat period: 2000-2013, but a total return of more than 400,000%. This trend in great investments is so common that it’s hard to find exceptions.
The first several years of stock investing are grueling, often delivering one paper loss after another. As most commercial aircraft have a takeoff distance of about two miles, most portfolios need several years to begin to soar.
A portfolio of 20 to 30 stocks is optimal for retail investors (that’s us). As you expand to 40 or more, your portfolio increasingly resembles an index, reducing its ability to outperform. Furthermore, the beam-width of your attention is limited, so tracking scores of businesses is unfeasible over the long term.
Your most regrettable decisions are likely to relate to stocks you used to own, but sold too soon. I took $8,239 off the table in early 2009 by selling MercadoLibre (MELI), a stock that has since increased 50-fold. That’s nearly $500,000 in lost gains, due to selling on a whim. Had I bought every stock precisely when I sold it, my 25-year compounded annual growth rate would have been almost 2% higher. David Gardner, co-founder of The Motley Fool and possibly the greatest retail investor since the 1980s, found the exact same thing when he conducted a similar study on his portfolio. Sell with the greatest of reluctance.
Consistent investing at set intervals eliminates the most challenging aspect of investing: market timing. More importantly, you harness the benefits of dollar-cost averaging.
This is not a one-sided bet. It is, however, unidirectional – meaning it is limited in one direction but not in the other. Assuming you are not using leverage, the most you can lose in any investment is exactly what you invested. The upside is uncapped at 10-fold, 20-fold, or, in Dell’s case, 1,600-fold.
Poor decisions are common in stock investing. It is crucial to learn from mistakes but not dwell on them. The dot-com bubble taught me the importance of this, and I haven’t lost sleep over a could-have-should-have since.
One good investment can change your life. Just one. And that, I think, is why we’re all here.
Emmet Savage
MyWallSt
Tell us what you think: [email protected]
P.S. Porter and Emmet talked about these and other lessons when they sat down on camera during Porter’s visit to Ireland last month. The video of their conversation is coming down TONIGHT… so this is your last chance to watch it. Go here now.
Porter Stansberry
Stevenson, Maryland
Last Chance To Watch Investigating Project Prophet
At midnight May 1, our financial documentary goes offline.
Watch it now before it’s too late, and discover how Prophet could compress years of wealth building for you.
3 Things To Know Before We Go…
1. Big tech goes all-in on data center spending. The four largest hyperscalers, including Alphabet (GOOG), Amazon (AMZN), Meta (META), and Microsoft (MSFT), now plan to invest a record $725 billion this year on capital expenditures, nearly double the amount spent last year. The majority of this investment is going into data center infrastructure to fuel the artificial intelligence (“AI”) revolution. This is the largest industrial build-out of all time.
2. Anthropic is trading equity for compute, and the hyperscalers are getting it at half price. Complete Investor recommendation Alphabet recently committed up to $40 billion to private AI-platform Anthropic in exchange for 5 gigawatts (“GW”) of Google cloud compute capacity over five years. Meanwhile, Amazon committed up to $25 billion in exchange for Anthropic’s pledge to spend at least $100 billion on Amazon Web Services and to run its models exclusively on Amazon’s chips. Both deals were priced at $350 billion – roughly half Anthropic’s $688 billion secondary market valuation. Anthropic is desperate for more compute, and Alphabet and Amazon are entrenching themselves as the picks-and-shovels layer of the parallel processing buildout. The big are getting bigger, on terms only they can offer.
3. ExxonMobil’s three-headed engine continues to accelerate. Complete Investor recommendation ExxonMobil (XOM) reported Q1 results this morning, and the headline numbers were misleading. Strip out one-time hedging items and temporary timing effects that unwind next quarter, and core earnings were $8.8 billion, or earnings per share (“EPS”) of $2.09 – up from $7.6 billion a year ago and nearly double the $1.07 EPS consensus. This outperformance was driven by three engines: record production in Guyana of over 900,000 barrels per day, consistent volume growth in the Permian Basin, and its Golden Pass liquified natural gas (“LNG”) facility shipping its first cargo in March. Exxon also returned $9.2 billion to shareholders last quarter and has now raised its dividend for 43 consecutive years. With $15 billion in permanent cost savings since 2019, XOM is a fundamentally better business than it was five years ago.
Chart Of The Day… Apple
Shares of Porter’s Permanent Portfolio recommendation Apple (AAPL) traded at an all-time high today after reporting record-breaking Q2 revenue and EPS on Thursday.
Mailbag
“Precious Metals”
Bill K. writes:
Porter,
Here’s a question for you regarding precious metals. I’ve always looked at silver and gold as a pair of physical assets to hold. I recognize there are differences based on the range of commercial applications, the pure store-of-value proposition of gold, etc. But I think of both of them as important to hold. You never talk about silver, only gold, in any portfolio mix discussions. It would be great to get your perspective.
Porter Comment: Gold is money.
Silver is an industrial metal.
Totally different asset dynamics.
In yesterday’s Daily Journal, Porter wrote about the risks of Berkshire Hathaway’s Energy investments. Readers share their thoughts…
“Berkshire Hathaway Energy”
Daniel J. writes:
Analysis rings accurate, though not totally fair. You wrote about Shale in 2010, but Buffett bought COP a couple of years earlier, and your thesis hadn’t proved yet. Buffett owns the mistake post 2010.
I agree about alternative energy. Windmills overall, are not an answer unless oil sells for $150. It almost does. Holland does well with windmills and Finland with geothermal. Nuclear will be the answer in 2035. For now, fuel cells and a hodgepodge will power whatever data centers are built. Most data centers will collapse for lack of energy. In this environment, Buffett’s windmills make a little sense. However, don’t forget that Buffet’s rail cars also carry — coal.
Also Buffett is 95 and Charley would’ve been 100. When you wrote about shale they were 80 and 85. I can’t speak one tenth as well as Buffett and I’m one-third younger.
Finally Buffett has more T Bills than the Fed. If your end of America is correct, he’s the smartest guy in the room.
Porter Comment: Being the largest creditor to the world’s most bankrupt government doesn’t make you the smartest guy in the room.
“Buffett’s Energy Bets”
Alan M. writes:
Porter,
I think you hit the nail on the head on this one. Amazing that Buffett couldn’t figure that out, given that he wasn’t making money on these wind projects.
Goehring and Rozenswagj’s studies have calculated that both wind and solar are essentially not cost-effective. They cost more to construct in energy, steel, materials and concrete than is returned. Hydrocarbons are far more cost-effective than wind and solar plus lifetimes of wind and solar are turning shorter than you state at least in other studies. Gehring and Rozenswagj state the world has never grown a less cost-effective system of energy. Now liability has come into play as well as simply cost effectiveness. Their calculations even state pretty much the same for EVs, not cost-effective, but they are still improving.
I haven’t done a cost analysis of solar panels, but I was a top engineer statistician for Dow Corning, who owned half of the largest silicon metal producer in the world, about 40%. Silicon metal manufacturing was stolen by Chinese companies, undercutting the price yet producing insufficient quality for computer applications. China now owns the silicon metal production for solar which can stand lower-purity silicon metal. The production of silicon metal requires extremely high-temperature reactors. I would think the amount of energy input to silicon metal would make solar cost ineffective, just a thought without analysis.
Porter Comment: Solar’s primary problem is obvious. It’s called night.
“Fixated on Warren”
Pepsi N. writes:
Why are you so fixated on Warren Buffet? What has he ever done to you that you gleefully point out his shortcomings every chance you get? Who cares??? To my knowledge no one has ever accused you of being a billionaire or called you the Oracle of Baltimore. And you’ve been at this racket for how many decades now?
You weren’t present when Warren, Charlie and the Team made their decisions. You have no idea what info they had or didn’t have at the time when their decisions were made. You can only guess with the benefit of hindsight.
I have never been a Warren subscriber/acolyte/ supporter/whatever. But I have friends who are happy with the moolah Warren made them over the years. He’s certainly made a hell of a lot more money for a lot more people than you ever will in your lifetime.
Warren is an old man. Let him enjoy whatever years he has left without arrogant sourpusses like you constantly carping and nipping at his heels. It doesn’t speak well of you as a person, as a man or as a professional.
Porter Comment: Pepsi –
For 50 years, Berkshire Hathaway was the greatest business in all of capitalism.
Buffett figured out a kind of financial magic: grow insurance float and get completely free capital (as long as the underwriting is good). Use those earnings (and that float) to buy major stakes in the world’s best businesses: Coke, Amex, McDonald’s, etc.
But, beginning around the year 2000, Buffett began to convert Berkshire from an insurance company with an equity portfolio into a conglomerate. And, as he did so, the returns began to fall. From 1965 through 1999, Berkshire beat the S&P almost every year with an 11% annual advantage, on average. But, since 2006 – the last 20 years – it has only beat the S&P about half the time and, overall, has only broken even.
In other words, Berkshire has gone from a risk-free / fee-free way to vastly beat the market to a company where you’re unlikely to beat the market at all.
This transition – from the best of all time – to merely average at best, is a stunning transition that most people in the media haven’t noticed. And that virtually no one has ever described in full – including the reasons behind it.
Learning from others’ mistakes is a key part of my learning process. And nobody has taught me more than Buffett.
Hope that makes sense to you –
Porter
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