Friends,
My son (Stoffel, here) just started Little League baseball. He's at the stage where a pitching machine is used. Batters only get a strike if they swing. There are no walks.
The best hitter on the team is a kid we'll call "H". But H has an unorthodox approach: he'll step up to the plate and watch the first three or four pitches go by before swinging.
The coaches will often shout: "Why didn't you swing at that pitch?"
To which H will reply: "It wasn't where I thought I could hit it." He'll follow that up with a booming hit that usually clears the bases.
There's little doubt H will have a very difficult time adjusting as he grows older. Called strikes can be a major liability. But for the time being, he represents an excellent analogy for investing.
As Warren Buffett once put it:
If you're playing real baseball, and the pitch is between the knees and the shoulders, you either swing or you get a strike called on you.
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In the securities business...you can sit there at watch thousands of pitches, and finally you get one right where you want it -- something you understand -- and then you swing.
Between 2023 and today, three stocks have stood out as receiving a lot of hype and delivering on that hype. They include:
- NVIDIA: Behind the strength of data center sales, revenue more than quintupled. The stock is up 900%.
- Palantir: With a differentiated approach to AI, sales are up 60% in under three years while the stock has jumped nearly 1,900%
- Coinbase: As crypto becomes more mainstream, Coinbase's stock has surged over 600%.
I knew all three of these companies were loved by investors I deeply respect. But I didn't swing at any of the pitches. I simply didn't understand their businesses well enough to make an investment.
And yet, here are my returns over that time frame versus both the S&P 500 and Nasdaq Composite.
- My returns: 150%
- S&P 500: 60%
- Nasdaq Composite: 88%
How did I do it? I only swung at pitches where I understood enough about the company's moat or potential to warrant an investment.
In investing, the only thing that matters is the pitches you do choose to swing at.
Agonizing over the ones you missed is a fool's errand -- and a waste of your emotional energy. That's no recipe for long-term wealth creation.
You don't have to swing at every pitch. Just the ones that are right for you.
Wishing you investing success,
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Brian Feroldi, Brian Stoffel, & Brian Withers
Long Term Mindset
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