🧠 We Made A Mistake


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 role of valuation
  • Timeless Content: Insights from Mogan Housel
  • Thread: Stoffel's stocks sorted by valuation
  • Resource: Earnings calendar
  • And more!

TOGETHER WITH iWorker*:

I (Feroldi here) gained more than 100,000 LinkedIn followers over the past seven months. How? I consistently create & post financial infographics.

There's no way I could have done that without my virtual assistant. She saves me 20 hours per week by handling data entry & graphic design.

I was initially hesitant to hire a VA because I didn't want to pay a huge placement fee. That's why I hired her through iWorker. iWorker found me a bi-lingual VA who lives in my time zone. Plus, there's no placement fee!

Want to free up your schedule? Click here to get started with a VA:

Friends,

If you've followed us for any period of time, you've likely seen us share this fantastic graph:

We've used it constantly to emphasize that valuation (multiple) is not the end-all, be-all of investing. It shows that revenue and profit growth are far more important.

But we've highlighted a part that's often ignored (including by us):

Let's think about this for a minute. By selecting the top quartile of stocks for returns, we're already throwing out 75% of the S&P 500. That shouldn't be overlooked -- and yet we've consistently overlooked it!

Why does this matter? Well, let's look at three of the best-performing stocks between 2010 and 2020:

  • Netflix: 4,011%
  • DexCom: 2,611%
  • TransDigm: 2,183%

All three companies share something in common: they grew revenue ridiculously fast. Netflix transitioned to streaming, DexCom eliminated the need for diabetes patients to draw blood, and TransDigm became the one-stop shop for the airline industry.

Importantly, all three grew far faster than even the most bullish analyst was predicting in 2010.

There are two reasons this caveat matters:

  1. Selection Bias: By looking at the best performers, we're self-selecting a pool of stocks that -- by definition -- likely grew faster than expected.
  2. Hindsight Bias: We know the best performers of the past decade because the past decade already happened. We don't know who the next group of outperformers will be.

Think about it: If I pick an "expensive" stock that returns 5,000% over the next decade, I can crow that valuation doesn't matter. If I pick that same stock and it tanks, it won't be included in this data set.

None of this is to say we've done a 180 on valuation. We still believe a company's moat, optionality, financial fortitude, and culture are the primary drivers of future returns. But we've realized -- painfully -- that you can't ignore valuation either.

And valuation is probably the trickiest part of investing. There's no one-size-fits-all approach. It largely depends on what type of investor (and person) you are.

If you want to level up your valuation skills, join us for a free webinar on April 11th (tomorrow) at noon EDT. We'll show you how super investors like Warren Buffett, Marc Andreesen, and Sam Zell value businesses -- and what makes the most sense for you. ​Click here to register instantly​.

We hope to see you there

- Brian Feroldi, Brian Stoffel, & Brian Withers


One Simple Graphic:


One Piece of Timeless Content:

Morgan Housel's focus on the long-term is inspiring. His 2016 interview on Patrick O'Shaughnessy's podcast, Invest Like The Best, was a great listen and is still relevant today. Topics include the differences between private and public market investing, how businesses are structured, and how Morgan finds topics to write about.


One Thread:

twitter profile avatar
Brian Stoffel
Twitter Logo
@Brian_Stoffel_
8:50 AM • Apr 6, 2024
106
Retweets
918
Likes

One Resource:

"Earnings season" is right around the corner. Want to know which companies are reporting this week or next? Finchat's earnings calendar is a great resource. Simply select a time frame or pick a company of interest. Sort by market cap (largest on top) to find the most popular companies. Best of all, it's free!


One Quote:


👋 What did you think of today's newsletter?

🧠🧠🧠🧠🧠 It was awesome!

🧠🧠🧠 It was OK

🧠 Do better


More From Us:

📗 If you've read Brian Feroldi's book, he'd love a review.

👨‍🎓 The next cohort of our Valuation Explained Simply course starts in May! Click here for details.

🎬 Want a review of popular company earnings? Check out our YouTube channel! Earnings season starts soon; we can't wait!


Long-Term Mindset

I teach investors how to analyze businesses. 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: <2 minutes Lesson: Licking our wounds Timeless Content: Why "skin in the game" matters Thread: Why Individual Investors Have an Advantage Over Wall Street Resource: Advice for New Graduates in the Age of A.I. And more! Join Us For A Free Investing Masterclass: Join us next Tuesday (July 1st) for an investing masterclass: Five Moats Every Investor Must...

View Online | Sign Up | Advertise Welcome to Long-Term Mindset, the Wednesday newsletter that helps you invest better. Today's Issue Read Time: <2 minutes Lesson: America's greatest author Timeless Content: The state of the housing market Thread: Key SEC Statements for Investors Resource: Ray Dalio's All-Weather Portfolio And more! Sponsored by: Brain.fm Transform Your Focus With Brain.fm We know you’re always on the hunt for tools that genuinely improve your life—which is why we're excited...

View Online | Sign Up | Advertise Welcome to Long-Term Mindset, the Wednesday newsletter that helps you invest better. Today's Issue Read Time: <2 minutes Lesson: A lesson from little league Timeless Content: The state of the housing market Thread: Key SEC Statements for Investors Resource: Ray Dalio's All-Weather Portfolio And more! Sponsored by: Superhuman AI Find out why 1M+ professionals read Superhuman AI daily. AI won't take over the world. People who know how to use AI will. Here's how...