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🧠 Am I Wrong About Tesla, Axon, and Shopify?

January 2, 2025
3 mins Read time
Welcome to Long-Term Mindset, the Wednesday newsletter that helps you invest better.
• Lesson:
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Friends,

The New Year is a great time to look ahead, but also to consolidate the wisdom we've gained from the past. In that light, I (Stoffel, here) want to reflect on the scars from 2022 that are still with me.

My portfolio dropped 53% during the year and had an even larger drawdown peak-to-trough. That led to a big change in the way I make decisions: I introduced valuation as a key component to my investing process.

Often when I explain why I'm doing this, I show this graph. It details when I first bought Shopify in 2017 (green arrow), how it grew to a huge part of my portfolio by late 2021 (black arrow), and how it fell 83% over the next year (red arrow).

Importantly, I also show that at its peak in 2021, Shopify's stock had ridiculous expectations. If I had done a reverse discounted cash flow (rDCF) analysis on it, I would have seen it needed 54% growth in free cash flow every year for a decade to justify that price.

That's 7,500% growth in free cash flow over 10 years.

"Had I realized that," I tell people, "I would have at least trimmed the position by 50% at that point."

Well, the surging stock market tested my valuation-focused resolution in 2024. During the fourth quarter, I trimmed positions in Axon, Shopify, and Tesla after all three had significant run-ups leading to stretched valuations.

Will that be the right call? Only time will tell.

But going back to my previous example from Shopify, I realize an uncomfortable truth. Had I been focusing on valuation throughout the pandemic, I probably would have started trimming long before the stock peaked in late 2021.

In real life, I would have waited over a year before my decision looked like a good one. The same thing may occur with Axon, Tesla, and Shopify. That's why I just sold some -- not all -- of these three stocks.

It's also a reminder that the only way to keep your sanity in investing is if you take the long view. Invest in wide-moat businesses at reasonable valuations -- and don't be afraid to take some off the table when your analysis says it's prudent.

Wishing you a happy New Year in 2025,

Brian Feroldi, Brian Stoffel, & Brian Withers

Long Term Mindset
P.S. Seen any great investing content lately? Reply to this email with what you've found and we might include it in a future newsletter.

One simple graphic

One piece of timeless content

We always love learning from other successful investors. Bob Farrell, former head of research at Merrill Lynch, had his insights created into a set of 10 Timeless Rules for Investors. His wisdom on this market makes this short essay a must-read for any investor.

One Thread

Thoughts I've shared with new investors:

1. View the stock market as a savings account that you keep adding to. Regularly invest money you don't foresee needing for at least 3 years, and ideally that you'll keep invested for much longer.

— Jeff Fischer (@FoolJeffFischer) November 13, 2020

One resource

The end of the year is an excellent time for reflection, especially with your finances. Ramit Sethi, best-selling author and personal finance guru, advises you to take a few minutes during this time of the year to do a "rich life review." It could be the most valuable thing you do all year.

One quote

Brian Feroldi

Brian Stoffel

Brian Withers

More from us:

My Data-Backed Investing Plan For 2025

My Top 5 Stocks To BUY In 2025

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