Here's How to Turn Yourself Into a 'Make Money' Investor

The truth is that both quality and price matter. But they're not equally weighted... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [DailyWealth] Editor's note: You might think you have to choose between "growth vs. value." But the market isn't a monolith. In this classic essay – last published in DailyWealth in April 2019 – our colleague Whitney Tilson explains how to avoid the mistakes of rigid thinking... and why the best investment approach may lie somewhere in the middle. --------------------------------------------------------------- Here's How to Turn Yourself Into a 'Make Money' Investor By Whitney Tilson, editor, Stansberry's Investment Advisory --------------------------------------------------------------- I had it backward my whole career... For most of my time on Wall Street, I was an old-school value investor. That meant I dug through the "bargain bin" looking for stocks that traded at low multiples of earnings, cash flow, or book value. Of course, I cared about the quality and future growth prospects of the companies I invested in, but to me, that part was secondary. The problem was that the cheap stocks were usually cheap for a reason... because the underlying businesses were lousy. So the seemingly cheap stocks turned out to be value traps – they just went down and down as the businesses declined. But years ago, I changed – and improved – my approach to investing and how I pick stocks... --------------------------------------------------------------- Recommended Link: ['The Best, by Far, of Any Investment of Any Kind I Have Ever Made']( Michael G. calls it "the best decision I have made in 25 years of investing." Jordan U. says, "I have told everyone who will listen that this is the best deal I HAVE EVER MADE." To be clear: these readers are not simply talking about stocks, bonds, options, or any particular investing strategy you've likely considered. On Tuesday, August 13, at 9 a.m. Eastern time, join us for our special 25th-anniversary broadcast and find out why these readers are raving about the [No. 1 secret of our firm](... --------------------------------------------------------------- You see, falling for value traps is just one of the four mistakes that tend to plague classic value investors. The other three are: - Failing to buy high-quality businesses because their stocks don't appear cheap. - Selling great businesses too soon because their stock prices seem "too high." - Failing to understand and appreciate powerful new technologies and trends. I'll confess – despite all of my successes during my more than two decades in the markets, I've made every one of these errors. I want to emphasize, however, that the lesson here is not to just do the opposite and buy the stocks of great growth companies irrespective of valuation. Growth investors frequently make the following mistakes that are, in many ways, the inverse of the ones value investors make: - They overestimate future growth, forgetting the powerful force of reversion to the mean. - They miss the impact of changing technology, new competitors, size acting as an anchor to growth, etc. Trees don't grow to the sky. - They pay too high a price for a stock, such that even if the business performs well, the stock doesn't. - They fall in love with their stocks and fail to sell when they should. - They get sucked into "story stocks" in the hottest, most over-hyped sectors where expectations are way out of line with the fundamentals. The truth is that both quality and price matter... But they're not equally weighted. I estimate that 75% of what determines a stock's performance over time is how the company performs, and only 25% is the valuation at the time of purchase. Unfortunately, for my entire career I had this backward: I looked among cheap stocks and tried to find good businesses, when I should have looked among good businesses to find reasonably priced stocks. That's why I changed my approach... Today, rather than being a classic value investor, I call myself a "make money" investor – meaning that I try to combine the best of value and growth investing. It's the best way to capture the upside – and avoid the common pitfalls – of both styles of investing. So stop digging in the bargain bin. Instead, look for high-quality companies and wait until you can buy their stocks at a reasonable price. If you are smart, courageous, and patient, you will crush the market. Regards, Whitney Tilson --------------------------------------------------------------- Editor's note: What sets the top 1% of our readers apart from everyone else? In short, they understand the biggest secret in our business... On Tuesday at 9 a.m. Eastern time, we're broadcasting how it works in a special 25th anniversary message. It's something we haven't discussed publicly in three years. But with the latest spike in volatility, it's the No. 1 way to prepare for what's ahead... and to unlock the highest level of research our firm has to offer. This briefing is free to attend online. Just make sure you sign up to watch ahead of time... [Save your spot right here](. --------------------------------------------------------------- [Tell us what you think of this content]( [We value our subscribers' feedback. To help us improve your experience, we'd like to ask you a couple brief questions.]( [Click here to rate this e-mail]( You have received this e-mail as part of your subscription to DailyWealth. If you no longer want to receive e-mails from DailyWealth [click here](. Published by Stansberry Research. You're receiving this e-mail at {EMAIL}. 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