Dear Investors,
What a crazy year this has been, and there are still two months to go. The volatility, barrage of news, and say-it-so-loud-that-they-cannot-be-wrong opinions have been constant.
As the world becomes more polarized, the stock market responds with a corresponding level of unpredictability. Even many respected investors are switching opinions and moving in and out of stocks at an alarming rate. It is hard to keep track of the never-ending ebb and flow of popular opinion on any given stock.
I have found Twitter to be an incredible tool for interacting with smart investors and for generating new investing ideas, but it does come with a downside. Faith in one’s companies can be more easily shaken when it seems that the whole world believes you are wrong.
One clear example of the fickle nature of popular stocks is our very own MultiBagger Madness. Fastly cruised through the tournament and was the presumptive champion for much of it. Since then, it has been the worst performing stock of the entire field, and its market cap has been halved. I suspect that if the tournament was held today, it would struggle to make it out of the first round.
Pictured below you can see the performance of the MultiBagger Madness bracket. You might be surprised to learn that every single round of the tournament is underperforming the market. Some of this underperformance is due to Fastly, but we cannot pin it all on the tarnished titleholder. Only 19 of the 64 stocks in the tournament are outperforming the S&P 500.
https://optimistinvesting.substack.com/p/multibagger-madness-championship
Despite this poor start, I still expect that, as a whole, the stocks picked will outperform the market over a 10-year period. Some stocks, though, will not, and that is why we diversify. As I imagine many of you experienced, I both agreed with and disagreed with many of the decisions that voters made. There are, however, a lot of great companies in the field that are changing the world and will continue to be innovative forces for good for years to come. The question is “How many people who voted for these incredible companies will still be shareholders in 10-years?”
There are many ways to make money in investing, but I like to keep it as simple as I can. To steal a line from David Gardner, “I try to find excellence, buy excellence, and add to excellence over time. I sell mediocrity. That’s how I invest.”
In my view, it is much easier to judge which companies will have a lasting impact on the world than it is to predict a company’s quarterly earnings AND how the market will respond to those earnings.
Many investors are very focused on how the US election this week will impact the market in one way or another. That is not a bet that I am interested in making. As I look at my portfolio, I see industries, companies, and management teams that I am confident will figure out ways to thrive in any environment. Short-term thinking can have devastating impacts on your financial future. Remember this as 2020 rages on. Do not let yourself be swayed by emotion into making trades that you will regret for years to come. Find great business, buy great business, and watch great business change the world and lead you closer to financial freedom.
I know that it is hard, but in the midst of this crazy world, find ways to disconnect for a bit. Suppress the urge to check your brokerage account for the 5th time each day. I promise you that the market does not reward you for your emotional attachment to your portfolio. Though it might seem counter-intuitive, I find that the more time I spend thinking about other subjects, the better investor I become.
Stay safe, stay healthy, stay strong.
Forever learning,
Ian Gray