profile

Long-Term Mindset

๐Ÿง  The Key to Profiting from Unprofitable Stocks

Published 5 months agoย โ€ขย 3 min read

View Online | Sign Up | Advertiseโ€‹

Friends,

Despite being down 65% from all-time highs, Shopify remains one of the best investments you could have made over the past eight years. Since January 2016, shares are up 2,000% -- turning $10,000 into $200,000.

All three of us have been holding Shopify for several years. Yet, at the time of our initial purchases, Shopify was producing large bottom-line losses. So, why did we all decide to invest?

It all rests on one important factor: Shopify was building a moat. Once a business started using Shopify, it became really hard for them to switch to another provider. We could all see that Shopify made its platform stickier over time as it added new services. Merchants can now use Shopify to handle dozens of mission-critical tasks, such as managing the website, collecting payments, advertising, and arranging fulfillment.

The chart below shows Shopify's gross profit and operating expenses over time. You can see management intentionally spent just a little more than it took in to grow faster, capture market share, and widen the moat.

That's a core reason why each of us decided to invest. Shopify was growing at an astounding rate and building a moat simultaneously. When combined, we could see that Shopify had the ability to generate massive profits in the future. Management was playing the long game and winning. That's not easy to do.

This post isn't to gloat about our early investment in Shopify. Rather, it highlights an important dynamic: pursuing a money-losing strategy can make sense if a company is in hype-growth mode and successfully building a moat. They must do both simultaneously, all while not losing too much money. It's a delicate balancing act.

Of course, for every success story like Shopify, dozens of other unprofitable growth companies flamed out. Management teams must produce strong growth and prove they are building a moat to justify a long string of losses. Most profitless growth companies fail at this delicate balancing act, causing their shareholders to suffer.

However, if you can invest in just a handful of the hyper-growth companies that nail this delicate balancing act and hold for a decade or two, you'll have all the money you need to meet your financial goals.

Wishing you investing success,

- Brian Feroldi, Brian Stoffel, & Brian Withers

P.S. We are hosting a free webinar, How To Analyze Unprofitable Businesses, next Thursday, October 12th, at noon EDT. Click here to register instantly with 1-click.


Together with CNBC Proโ€‹

We recently gained access to CNBC Pro. If you're an investor, there's a lot to like about this site.

CNBC Pro enables users to access ad-free, full-length interviews with guests that only CNBC can access, such as Warren Buffett, Bob Iger, Ken Griffin, and Ron Barron. It also offers live monthly 'Pro Talks', hour-long discussions with big-name money managers. Past guests include Cathie Wood & Thomas Russo. Bill Ackman will be a guest in the near future.

CNBC Pro also features a growing library of ad-free videos, up-to-date insights from professional analysts, breaking news, trending tickers, analyst upgrades & downgrades, and insights into the big macro.

Take a tour of CNBC Pro's full features by clicking here.

โ€‹

One Simple Graphic:


One Piece of Timeless Content:

Waiting for the perfect market conditions to invest? A recent Charles Schwab study looked at an investor with a lump sum to invest and compared five different investing stylesโ€‹ and the results. Long-time investors may not be surprised that the study confirmed the old adage, "It's time in the market that matters and not market timing."


One Thread:

Investors can be their own worst enemy. This great thread by MnkeDaniel breaks down five biases that cause investors to make terrible decisions.


One Resource:

Planning for a leisure-filled retirement? A key step is to estimate how long you'll live. Here's the life expectancy calculator that the IRS uses.


One Quote:


More From Us:

๐ŸŽฅ Join us on Thursday, 10/12, at noon EDT for our free webinar: How to Analyze Unprofitable Businesses. Click here for information and to register.

๐Ÿ‘จโ€๐ŸŽ“ NEW! Our brand new course -- Advanced Financial Statement Analysis -- starts on October 30th! See the details and join the waitlist.โ€‹

๐Ÿ“— If you've read Brian Feroldi's book, he'd love a review.

๐Ÿ‘จโ€๐ŸŽ“ Need help getting your personal finances in order? Click here to startโ€‹ our 5-day Financial Wellness email course. It's completely free.


Long-Term Mindset

by Brian Feroldi

I teach you how to invest with a long-term mindset. Each Wednesday, I share six pieces of timeless content that can be read in less than 2 minutes. Read by 100,000+ investors from a16z, Amazon, Google, Microsoft, and more.

Read more from Long-Term Mindset

View Online | Sign Up | Advertise Welcome to Long-Term Mindset, the Wednesday newsletter that helps you invest better. Today's Issue Read Time: <3 minutes Lesson: The future matters the most Timeless Content: Difference between bold and reckless Thread: 15 timeless investing visuals Resource: Dividend ETFs And more! Together With Sidebar Sidebar is a leadership program that accelerates your career. Itโ€™s where people at the top of their field grow through a small peer group, virtual platform,...

4 days agoย โ€ขย 3 min read

View Online | Sign Up | Advertise Welcome to Long-Term Mindset, the Wednesday newsletter that helps you invest better. Today's Issue Read Time: <3 minutes Lesson: A tale of Shopify's losses that weren't Timeless Content: Advice for young investors (or young at heart) Thread: Net income versus free cash flow Resource: Farnam Street blog And more! Together with 10 East 10 East is a membership-based investment firm focused on private market exposures for a select community of institutional and...

11 days agoย โ€ขย 3 min read

View Online | Sign Up | Advertise Welcome to Long-Term Mindset, the Wednesday newsletter that helps you invest better. Today's Issue Read Time: <3 minutes Lesson: Understand the base rates of stocks losing to the market. Timeless Content: How to get rich. Thread: Stoffel's Antifragile Portfolio reviewed Resource: Warren Buffett archives And more! Together with Finchat Brian Feroldi analyzing a stock with Finchat I (Feroldi here) am a huge fan of visuals. A good chart can relay information 10x...

18 days agoย โ€ขย 3 min read
Share this post