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It’s a portfolio strategy... Let’s say 2 or 3 out of 10 don’t fail. You want to quickly figure out who those 2 or 3 are, and then take your 25k investment and make a 100k investment in those 3. -- Jason Calacanis, interview with AngelList
Him: "But wait! Can the stock market even deliver such returns?"
I'm on my feet now, pacing in the room back and forth between the blackboard and my laptop. He doesn't give me a chance to respond: "Has it ever been done? Has anyone achieved 1000X return in the stock market in less than a decade, without just getting lucky?"
I didn't even look up. I went back to my laptop, fired up the stock screener and sorted the stocks listed on the U.S. stock markets based on their total 5-year and 10-year returns (dividends and all included). I filtered out the weirdo penny and micro-caps and weeded out the companies that are not actively traded. Right on the top, was the king of entertainment, Netflix, with a total 10-year return of 6,960% return. That's about 70X return on your investment in the past ten years. In comparison, S&P 500 index grew by approximately 2X in the same 10-year period. And Netflix is not alone. There are many others on the list. Well-known names such as Amazon and Momo to name a few.
He said: "That's nowhere close to 1000X..."
I'm holding my hands in his face "True! But, when Jason invests, he deals with a lot of uncertainty. So many things could go wrong with a startup. The founder may give up. The team may not be able to execute. They may fall off track and only inform Jason when it is too late. Lack of information and data about his investments makes his job so much harder than a stock market investor. That's why it is possible to make such impressive return. He takes risks in the face of uncertainty, and he harvests his well-deserved rewards."
I continue: "That's an advantage for us! The advantage a stock market investor has over Jason is having access to a wealth of data about each publicly traded company. Quarterly and annual earnings calls give us a wealth of information that Jason never has access to."
Now, if we take advantage of having access to a lot more data about our investments and combine that with the emotional stability and calmness Jason applies to his investments, we should be able to effortlessly grow our investments by 10X, if not more. This is much lower than Jason's 1000X, but we are also taking a lot less risk. And, 10X return in 10 years beats the hell out of investing in S&P 500. With all that in mind, we set out to start a new investment theme inspired by Jason Calacanis and we shall call it:
The league of 10Xer stocks:
The goal of 'The league of 10X stocks' is to invest in companies that have the potential to grow by about 1000% in a decade or less. Looking back at the companies such as Amazon and Momo which were able to do that in the past 5 to 10 years we know that such companies must have a few characteristics:
The first three candidates to start the league of 10X stocks are above. As we add new Stock Cards, we will keep an eye out for new 10Xers. You can be a part of the league too. Submit a Stock Card request for the stocks on your radar that have the potential to grow 10X.
What has been on our radar?
Before we wrap up, we wanted to thank Mark B., Raffaello S., Sam K., Larry Y., and Bradley T. from our user community who submitted Stock Card requests this week. Take a look at these Stock Cards by clicking on their logo:
You have to be constantly reinventing yourself and investing in the future. -- Reid Hoffman
The PDF-reading, excel junkie is our CEO and Co-founder and you just pictured her finding a new theme that led to several market-beating investments. Investing by theme is a performance-based way of diversifying. Commonly, people diversify by sector or region to make sure they can balance off potential declines in one stock by the growth in another. But, when you diversify by theme, you are consistently picking top-performing stock without sacrificing performance in the name of diversification. For our CEO, Amazon and the 'rise of e-commerce' theme outperformed the market by 277%. Nvidia and the 'brain of the cars' theme outperformed the market by 542%. These were some of her favorite investment themes which are now mainstream ideas of the stock market. What to do now? What would an intelligent investor do?
Introducing the Stock Card's new investment themes!
Two days ago, we quietly launched a new feature that brought a big smile of nostalgia to our CEO's face. For a few weeks, we have been spending hundreds of hours on market research, reading annual reports, sifting through thousands of articles, and compiling a new set of future-defining themes. Our goal is to make well-educated, data-informed, and emotion-less long-term bets on the companies that are changing the world from the way we know it. Such detailed research and data-forward investment approach is the underlying strength of Stock Card's new investment themes feature. We built each theme to address one significant trend that is shaping the future, just like how our CEO used to do. From now on, every week we will introduce you to at least one new Stock Card from those themes in which we plan to add to our real-money portfolio.
Keep calm and invest!
If you have been with us in the past few months, you have seen how Stock Cards save you the pain of detailed, data-heavy, emotion-free research and present to you each investment opportunity in a fun and interactive way. Now, with the new investment themes, you can continue laying back on your sofa, sipping your Sunday morning tea or coffee and find new investment ideas before you finish your beverage. Click on 'Our Performance' page to experience the calmness of investing in the future.
Build your own themes!
You can be a part of it too. Create your own themes on 'My Portfolio" page, find those future-defining stocks, submit a Stock Card request so that we can do the research for you and track your investment smarts against the overall market! Let's go!
What has been on our radar?
Before we wrap up, here are some of the latest Stock Card requests by our users:
Picture me pacing back and forth in the office, having a conversation in my head with my investing Gollum. That was me all week. If you don't know who Gollum is, stop reading too many annual reports and Seeking Alpha articles and watch some movies. We the intelligent long-term investors all have a Gollum who wants to keep those precious stocks and never sell. This past week, we spent hundreds of hours discussing and researching why and when intelligent investors sell their long-term investments. Just like how we invest in stocks, we also need a data-driven and emotion-free process for selling those precious ones. Here are the three selling principles every intelligent investor must follow:
Number Three: When you need the money!
It's pretty obvious. You have to sell when you need the money. Hopefully, you have planned your finances accurately so that you don't have to sell during a downturn. Nevertheless, it is pretty logical to sell when you need the money. Beats the hell out of picking up debt.
Number Two: When you have a better investment idea!
Many times we fall victim to our success. When a stock is steadily paying a few percentages points, or it is maintaining its original value without going much up or down, we fall into this slow rhythm of mediocrity. In those cases, you don't have to sell all of your stocks, but you may free up some cash and allocate it to other companies with a higher trajectory. I recently did just that with my shares of Graham Holdings. While it is still a good and steady company with an overfunded pension, I sold some shares, freed up some cash and plan to invest it in other well-run enterprises.
Number One: When the company is no longer worth it!
Nothing ruins a beautifully handcrafted portfolio than a gradually eroding business. Sometimes we invest in a company and never check the pulse on our investment in the name of long-term holding. We only notice the depth of the disaster when it has lost almost all of its value. It hurts me to tell you, but Tripadvisor hunted me for several days before I finally admitted it was time to sell. When in your annual portfolio review you come across a company that has changed colors from a well-operated, nifty business to a company with declining sales, or it has accumulated high debt, it's clear that the time has arrived to say goodbye to that precious. Remember, you can repurchase it when it recovers, but also use the loss to offset your other gain when you are filing your taxes. In other words, the most important reason to sell your long-term investments is to stop digging if you find yourself in a hole.
What has been on our radar?
As always, our community has been busy exploring new companies and stocks. Here is what has been on our radar in the past week. And, don't forget to submit your Stock Card request as you come across new companies and ideas... Let's go!
Alright, that's it for this edition of stock card weekly. To read the previous editions of Stock Card Weekly visit our website, or click on the Stock Card Weekly images at the top of All Stock Cards tab.
Lastly, have you joined our Facebook group? Great conversations, no ads, no BS, all pure intelligent investing. Join and let us know what are the stocks you are planning to sell and why?