Inside today’s Daily Journal…

Never sell a great business.

This is the “golden rule” to investment success. It’s the single most important thing you can learn to do as an investor.

It’s also extremely difficult to learn this discipline. Everything – the media, the market’s volatility, your spouse, your own demands for cash – conspires to force you to sell.

Here’s a brief list of some of the best businesses I’ve ever recommended. These are the total returns investors could have earned if they’d invested $25,000 and held until today.

Stock (when recommended): returns since our initial buy (of $25,000)

Owning any of these businesses would have made a material difference to your net worth – but only if you held through massive drawdowns. And, unfortunately, until 2018, I would have advised you to sell at some point on the basis of a trailing stop loss.

A trailing stop loss is a rigid, mechanical way to avoid taking a huge loss in any given investment. You simply set a level (such as 25%), and you sell any stock if it declines more than this amount from any high price while you’ve held it. This is a good way to trade momentum stocks and it’s a great way to avoid taking a catastrophic loss.

My mentor, Steve Sjuggerud, taught me trailing stops on virtually my first day working for him in 1996. And using them, I produced average annual returns of 14.9% a year from 1999 to 2018 in a long/short portfolio that was totally uncorrelated to the market. That was more than double the market’s return in the same period. So using trailing stops won’t prevent you from doing well as an investor. But they will prevent you from doing great.

That’s why in August 2018, I stopped recommending them to readers (except in rare situations).

(Here’s a link to the Stansberry Research Digest where I first announced this change to my investment philosophy.)

Why did I abandon trailing-stop losses?

I’ve written a lot about the power-law nature of investing. A tiny fraction of all of the publicly traded stocks (about 4%) end up making 100% of the returns over time. Trailing stops virtually ensure that you will not own these power-law stocks for long enough to enjoy their real potential because even the best businesses in the world will have a 25%-plus drawdown once or twice a decade.

Thus, trailing stop losses are a risk-management strategy that’s incompatible with long-term, power-law investing.

How do I know?

There was a landmark study by Hendrik Bessembinder in 2018 that looked at U.S. stocks over nearly a century, from 1926 to 2016. He proved that only about 4% of stocks accounted for all the net wealth creation. In the stock market, there are a handful of massive winners driving everything, while most stocks barely beat U.S. Treasury bills – or even lose money.

It can be very difficult to move on from a good strategy that works to a great strategy that works much better.

It took Warren Buffett about 20 years to figure out that “cigar butt” investing didn’t work as well as simply buying great businesses. Buffett, as you may remember, was mentored by the famous value investor, Ben Graham. Ben taught Buffett the cigar-butt method – buying lousy businesses that were trading at a fraction of their accounting book value. These were companies that had “one puff” left in them.

And for many years in the 1950s and 1960s, as the stock market finally recovered from the Great Depression and World War II, it worked. Lots of really bad businesses got a “second wind.” Buying them for $0.50 on the dollar worked quite well. But once the market was more accurately valued in the 1960s, it no longer worked as well.

By the 1970s Buffett badly needed a better strategy. Fortunately, he’d become close friends with Charlie Munger – who served as the long-time vice chair of Berkshire Hathaway. And Munger taught Buffett a remarkably simple, but keenly valuable insight: there’s no difference between being an investor in common stocks and being a business owner.

If you were going to buy the entire business, not just one share of stock, what kind of business would you want to own? Answer:

Buffett’s first major investment using Munger’s approach – looking for power-law-winning businesses – was buying See’s Candies in 1972 for $25 million. Buffett paid 3x book value! But See’s would go on to add $2 billion in cash to Berkshire’s coffers.

Buffett has described See’s as the “prototype” for the modern Berkshire Hathaway investment. He realized that a business with pricing power and low capital requirements was worth far more than its physical assets.

We call those kinds of businesses “capital efficient.” These companies become power-law-winning investments because they can increase prices without corresponding increases to capital investments. And, as a result, they can compound wealth enormously – they become power-law winners.

When Buffett bought See’s, Munger calculated if they simply increased prices by $0.10 per pound they could increase profits by almost $2 million per year, an increase of 40%. This realization is what made Buffett stop looking for cigar butts and start investing only in great businesses.

I’d come to the same realization in the mid-2000s. That’s when I shifted away from trying to pick the next great tech stock to looking almost exclusively for great businesses, like Budweiser (BUD), Microsoft (MSFT), The Hershey Company (HSY), Visa (V), Starbucks (SBUX), eBay (EBAY), and American Express (AXP) – all of which I recommended between 2006 and 2009.

Unfortunately, even though I’d greatly improved my investing paradigm, it didn’t occur to me until 2018 that I also needed to update my risk-management techniques.

Investing in the world’s best businesses was a huge leap forward in my results, but I was only able to capture a tiny fraction of the resulting gains because trailing stops consistently had us selling our best investments at the wrong time. With any great business, anytime you sell is the wrong time to sell!

And this isn’t just anecdotal – research bears it out.

Adam Lei and Huihua Li published the landmark trailing-stop loss study in 2009. What they discovered was that while stops lower risk, the reduction in volatility comes at the expense of a reduction in gains, especially in strategies that aren’t purely momentum-driven. Their study confirmed what I’d learned the hard way. When you’re investing in high-quality companies, trailing stops end up hurting more than helping because they force you to sell great companies during temporary drawdowns.

I’ve come to believe that the best approach to equity investing is to simply buy truly great, well-managed companies that are growing… and to hold them for as long as they continue to deliver great results.

Buying and holding individual stocks doesn’t offer protection from volatility. But there are other ways to accomplish that goal – like adding bonds, cash, gold, or commodities to your portfolio. I show you exactly how to do that in Porter’s Permanent Portfolio, which does not use trailing stops but has volatility that’s less than half the stock market’s.

At the foundation of my investment philosophy is the same insight that informed Buffett and Munger’s strategy: I make public-company investments the same way I run my private companies. I keep them as long as they can produce a good return on equity and as long as I believe they can continue to grow. I ignore price volatility, except as opportunities to buy more shares.

I’d love to hear from long-term subscribers. Do you still use trailing stop losses? Or have you shifted to other risk management strategies (like using TradeSmith’s VQ) to balance risk in your portfolio?

Tell me about your investment journey: [email protected]

Good investing,

Porter Stansberry
Stevenson, Maryland

Presented by Paradigm Press

Now, this Wall Street Legend Who “Called the 1987 Stock Market Crash Practically Down to the Minute” Goes Public Again…

“Called the 1987 stock market crash practically down to the minute” – Chicago Tribune

“Uncanny predictions of market turns” – New York Post

“He could be the new guru” – The Economist

Click here to learn about his latest shocking prediction.

Editor’s Note: Keep in mind, we only accept advertising from publishers we know to offer well-researched ideas vetted by a legal team, excellent customer service, and reasonable refund policies. Paradigm Press is one such partner. We do not, however, under any circumstances make any representations about their investment ideas or strategies, nor will we warrant them as equal to our own. We do recognize that the markets are tempestuous and, at times, ideas that we may not endorse prove valuable.

1. AI’s thirst for power. Global electricity demand will grow about 50% faster over the next five years than it did over the prior decade, according to the International Energy Agency. Data centers are the major driver: new facilities coming online through 2030 are expected to require more than 600 terawatt-hours of new electricity demand – enough to power 60 million homes. No doubt good news for any U.S.-based energy producers.

2. EQT: a cash-flow machine. The leading vertically integrated, natural-gas producer reported 2025 earnings per share that beat expectations by 17% – with $1.7 billion in annual net income. As a “low-cost operator,” EQT generated $2.8 billion in free cash flow for 2025, even in a volatile pricing environment. When prices dipped, EQT kept volume in the ground to preserve value, a move that, combined with record-shattering drilling speeds and a robust hedging program, proved the company can remain a cash-flow machine regardless of an uncooperative commodity market.

3. Oil prices surge on report of “war within days.” This morning, Axios reported that the U.S. and Israel are preparing for “imminent” war with Iran – much broader in scope than Israel’s 12-day campaign against Iran in June 2025. This follows the movement of significant U.S. forces to the Middle East in recent days, which reportedly includes two aircraft carriers, more than a dozen warships, 50 fighter jets, and multiple air defense systems. Crude oil is trading more than 4% higher on the news.

Shares of building-solutions company Amrize (AMRZ) are up 21%, reaching an all-time high, since Porter recommended them in December.

Tim P. Writes:

Porter Comment: Both are great companies, but I believe Kinsale (KNSL) will continue to grow faster.

Ken R. Writes:

Ted H. Writes:

Porter Comment: We have only recommended the most conservative way to invest in nuclear reactors, BWX Technologies (BWXT).

Shane F. writes:

Porter Comment: Shane,

I don’t think you understand the value of doubling the entire proven reserves of the Permian Basin, while reducing drilling costs 40%.

But I’ve been wrong before. – P

Please note: The investments in our “Porter & Co. Top Positions” should not be considered current recommendations. These positions are the best performers across our publications – and the securities listed may (or may not) be above the current buy-up-to price. To learn more, visit the current portfolio page of the relevant service, here. To gain access or to learn more about our current portfolios, call our Customer Care team at 888-610-8895 or internationally at +1 443-815-4447.