This is Porter’s Daily Journal, a free e-letter from Porter & Co. that provides unfiltered insights on markets, the economy, and life to help readers become better investors. It includes weekday editions and two weekend editions… and is free to all subscribers.

Today – taking a break from our normal publishing schedule – we are continuing our “12 Days Of Christmas” series.

Better than six geese a-layin’ and seven swans a-swimming, Porter & Co.’s version of the “12 Days Of Christmas” brings you something actually useful: hard-earned investment lessons to guide you through 2026. For the remainder of the year – in place of our regular research and insights – we will dish out key lessons from 2025… some earned from pain and others from gain.

Over the past year, editors across all of our publications have recommended stocks, bonds, or other trades that have resulted in a mix of outsized performances and humbling underachievements. Having begun on Tuesday, December 23, and extending through January 2, we will reveal a pivotal lesson – about why a stock soared to double-digit returns, or why one languished. We will also explore the ones that got away – that we sold too soon or that we didn’t recommend at all. 

Today, we take some lessons from two mistakes we made in our Complete Investor publication – either selling a great business too soon, or not buying it soon enough. 

Many investors believe the biggest mistake you can make is buying a stock that performs poorly… It’s not.

Not buying a stock that performs magnificently is an even bigger mistake.

Buying a loser – while regretful and money-losing – is not as bad a use of capital as the mistakes you can make by selling great businesses too soon – or not buying them to begin with – because you got spooked following a lousy quarter or we were worried about macroeconomic factors like interest rates. 

Our flagship publication Porter Stansberry’s Complete Investor (formerly The Big Secret On Wall Street) generally recommends only great businesses. As a result, virtually every time we’ve sold – or waited to buy – it has been a mistake.

In this issue we highlight two notable mistakes we’ve made, and show you the investment returns we missed out on by being too conservative when buying and holding great companies. 

In the July 1, 2022, issue of The Big Secret On Wall Street, we highlighted the remarkable business model of homebuilder NVR (NVR).

Most homebuilders are poor long-term investments. That’s because they’re terribly capital inefficient businesses – they require enormous amounts of capital to operate.

They take on debt to buy up big plots of land in areas where they think they’ll be able to build and sell houses. And to be fair, when they buy the right properties, in the right places, at the right price, they can make a lot of money. That’s why most homebuilders like to tout the size and quality of their land holdings.

However, over time, these companies inevitably end up owning too much land, in the wrong places, purchased at the wrong price. When the economy hits a rough patch, these companies struggle as the value of their land holdings fall relative to their high debt loads.

On the surface, NVR looks similar to other homebuilders. It builds homes in 35 metropolitan areas under a range of brands, such as Ryan Homes and Heartland Homes. It sells to both first-time home buyers and move-up buyers. 

But if you dig a little deeper, you’ll see that NVR’s return on assets (“ROA”) and return on equity (“ROE”) are significantly higher than other homebuilders. In fact, NVR’s ROE is more than double the industry average.

In other words, NVR is vastly more profitable than the average homebuilder.

Often when you find a company with such a big advantage in ROE, it’s because the company is highly leveraged. But NVR actually carries no net debt at all.

NVR’s secret is that it figured out a way to profit from massive capital investments without having to own those assets. Instead of developing large tracts of land itself, NVR partnered with independent developers to buy “options” on lots. 

This new business model gave NVR a huge advantage over other builders. So it decided to focus exclusively on this more capital efficient approach – in addition to pioneering faster and cheaper ways of building high-quality houses.

A combination of high capital and operating efficiency has made NVR one of the best-performing companies of the past few decades.

In fact, in the 20 years between 1996 and 2016, it had the highest returns on equity of any company with a market cap of $100 million or more – beating all the high-flying tech stocks of the dot-com boom and generating share-price returns of almost 30% annually, despite the mortgage crisis between 2008 and 2011.

So when shares dipped below $4,000 per share – trading at roughly half its average price-to-earnings (P/E) ratio of 15 – shortly after Porter launched Porter & Co. in the spring of 2022, we took notice. However, we did not recommend readers buy shares at that time…

That’s because we believed interest rates were likely to rise dramatically, which would cause the economy to slow and trigger a significant reduction in housing demand. While this would not be an existential threat to NVR like it could be to other homebuilders, we believed NVR’s earnings were likely to fall by 50% or more in the short term, and give us a much better entry price in the stock.

So instead, we added NVR to our Watchlist, and recommended readers look to buy the stock when it traded below $3,500 per share.

Unfortunately, we never got the chance.

As we expected, U.S. interest rates – and mortgage rates in particular – did continue to rise dramatically as the Federal Reserve tightened monetary policy. The average rate for a 30-year fixed rate mortgage rose from around 5% in the summer of 2022 to nearly 8% by October 2023.

However, we misjudged the impact of rising interest rates on the housing market.

While higher rates did discourage some would-be home buyers who could no longer afford to buy a house, they also discouraged many would-be sellers who didn’t want to give up the historically low rates on their existing mortgages – which they had locked in years earlier.

As a result, existing home sales plunged more than 30% and have remained well below their pre-COVID trend ever since.

This dramatic decline in existing homes for sale meant that new home sales actually held up surprisingly well, despite significantly higher mortgage rates. They, too, initially declined in 2022. However, new home sales rebounded quickly and have since returned to their pre-COVID trend.

Steady demand for new homes has allowed many homebuilders to perform well despite a general weakening in the broad housing market. And NVR, because it is a high-quality business, has been among the best performers.

As you can see in the following chart, NVR shares gained 110% since we didn’t recommend subscribers buy into NVR.

Unfortunately, that wasn’t our only mistake with homebuilders.

You see, while we added NVR to our Watchlist, we recommended readers buy shares of “the next NVR” instead: Hovnanian Enterprises (HOV).

Hovnanian’s turnaround story was similar to NVR’s. 

Hovnanian had adopted key elements of the NVR business model, most notably using options, rather than traditional land development, to acquire building lots.

This shift was quietly transforming Hovnanian into a fantastic business. In 2021, it generated gross margins of 21%, an NVR-like 29% ROA, and a better-than-NVR 53% return on invested capital.

Yet because of the company’s long history of poor performance – and its still junk-level credit rating – the market didn’t believe in this turnaround. Hovnanian was trading at a market capitalization of less than $250 million, which was roughly 40% of what it expected to earn, in cash, that year.

As we noted at the time, we had “rarely (and maybe never) seen such a high-quality business trading for such incredibly low prices, relative to earnings.”

So despite our concerns about higher rates and a weakening housing market, we wisely recommended readers buy shares of Hovnanian at that time, at a share price of $42.79…

“The low stock price reflects the market’s belief that HOV could go bankrupt if the coming recession is bad enough or if mortgage rates move substantially higher. On the other hand, if the coming market contraction in housing isn’t as bad as feared, Hovnanian is probably worth 10x what it is trading for today.”

And just a few months later, mortgage rates moved above 6%, and HOV shares – which had been trading as much as 25% above our recommendation price – quickly turned lower. We got spooked, and on September 29, 2022, we recommended readers sell Hovnanian for a 14.7% loss. 

Shares would ultimately bottom less than one month later, and absolutely soar over the next two years. If we had simply held on to HOV shares, we would be up more than 220% today.

We had the chance to buy and hold these great businesses trading at fair (or incredibly cheap!) prices. And whenever you have the chance to do that, selling (or not buying in the first place) is almost always a mistake.

These mistakes cost far, far more than the money we’ve lost over the years buying a business that does not perform.

So what’s the solution? That’s simple: Buy great businesses – especially when they’re trading at great prices. And do our best to never sell them… Ever.

Expect us to follow this rule more closely in 2026 in Porter Stansberry’s Complete Investor. 

If you’re not yet a Complete Investor subscriber, you can get full access to our recommended portfolio and Watchlist right here.

Porter & Co.
Stevenson, Maryland