Editor's note: The market rewards patient investors...
It might take time, but if you identify great companies that have reasonable valuations, you'll be positioned to score more winners over the long term than the folks who try to predict the next big trend.
In today's Masters Series, Stansberry's Investment Advisory editor Whitney Tilson shares how he spotted one of the market's leading stocks before it soared...
I Was Dead Wrong About Nvidia, but My Readers Made a Fortune Anyway
A month before the world shut down, I pounded the table on a stock I was certain would dominate the self-driving car revolution.
I turned out to be almost entirely wrong... And yet, it still became one of the greatest investments of my entire career.
The stock was Nvidia (NVDA).
My history with the high-end chipmaker is important not just because we're in a bubble fueled by Nvidia's biggest customers, but because it taught me the single most valuable lesson of my career: You don't have to predict the future to make a fortune. You just have to spot a great company before the rest of the world catches on.
On February 5, 2020, I recommended it at $6.27 a share (adjusting for the stock splits that came later). Back then, almost nobody thought of Nvidia the way the whole world thinks of it today. It made the graphics chips that powered popular video games like Fortnite.
Traditional chips like the ones Intel (INTC) make process tasks sequentially. These central processing units ("CPUs") have a few powerful cores built to handle one complicated task after another.
But Nvidia's chips have thousands of smaller cores. These graphics processing units ("GPUs") can simultaneously perform thousands of simple math calculations.
It turned out that Nvidia's chips became more in-demand not only because they use the parallel processing needed for video games, but also because that approach turned out to be the perfect solution for AI.
If you had stopped 10 people on the street and asked them what Nvidia was, not one person would have called it an "AI company." The term barely came up. ChatGPT was still two years away from its first release.
On the other hand, I had ridden in a self-driving Waymo out in California, and I walked away stunned. I was convinced that self-driving cars were about to change the world.
I became fascinated with the idea of "Transportation as a Service" – a future where fleets of autonomous, electric vehicles would remake how we shop, travel, work, and live. And I realized that a self-driving car is basically a supercomputer on wheels. It has to process a tremendous amount of data in real time, almost like a video game playing itself, at highway speed, with human lives on the line.
The company that cornered the market for video-game chips, I reasoned, was perfectly positioned to do the same for the chips in robotaxis. That was my thesis more than six years ago. I have to confess... it mostly hasn't happened (yet).
Look around. We still aren't living in a world of driverless cars.
Sure, Waymo gives more than 500,000 paid robotaxi trips a week across 10 U.S. cities... But the sweeping transportation revolution is taking longer to play out than I had anticipated.
If Nvidia had depended on self-driving cars to justify its stock price, my readers would still be waiting. But that's not what happened... not even close.
While I was staring at the highway, the real explosion in demand came from somewhere else entirely. Those same chips – the ones I thought would drive our cars for us – turned out to be the perfect solution for the AI boom.
When ChatGPT arrived in late 2022 and the AI race began, all the companies that imagined themselves players in this sector suddenly purchased millions of the fastest chips available – the ones Nvidia specialized in. The stock went on one of the most staggering runs in the history of the U.S. stock market...
Think about how strange that is for a moment. No one saw the single best reason to own Nvidia – the reason that would eventually help make it one of the most valuable companies on the planet.
I was right about the company, but I was wrong about the reason – and it didn't matter one bit.
Now, it would be easy to call it "luck." But it wasn't luck... and understanding why is the difference between gambling and investing.
Nvidia wasn't a random "lottery ticket." It was (and still is) a genuinely great business. The company had a dominant grip on its market (video-game hardware) and wide profit margins. It poured money back into research, year after year, and it sat in the intersection of where the future was being built.
When you own a company that strong, you don't have to know exactly which opportunity will lead to massive growth. A great business finds a way. My self-driving hunch turned out to be wrong. Nvidia found a different path to hypergrowth.
This is the thing most investors get backward. They spend all their energy trying to predict the future – the next hot trend, big headline, or miracle technology. That's the hardest game in the world to win.
The far more reliable path is to identify quality.
As longtime readers know, we focus on buying high-quality businesses. That might sound obvious – of course you'd rather own a great company than a weak one. And over time, the numbers prove it works.
Looking all the way back to 1957, high-quality stocks have beaten low-quality ones again and again...
There's a catch, though. Quality doesn't win every single month. Great companies usually sport rich valuations. And every so often, the market gets a little crazy and rewards junk instead.
That's what happened back in 2020, when meme stocks, cryptocurrencies, and questionable "blank check" companies took off while people sat at home with cash to spend. But over the long run, real quality wins out.
How do you actually measure something as nebulous as "quality?" That's the problem my team and I set out to solve, and the answer is a tool we call the Stansberry Score.
The Stansberry Score is built for investors. Instead of guessing at short-term price swings, it digs into how strong a company truly is. To do that, it grades every company on dozens of factors, including:
- Capital efficiency. Does the business earn real cash profits without needing to pour in mountains of money just to keep running? The best ones do.
- Financial health. Is the company actually growing, and are its profits real? Some businesses use accounting tricks to look healthier than they are, so the Stansberry Score checks for that.
- Valuation. Is the stock cheap or expensive? The Stansberry Score estimates what the business is really worth and compares that with its current price.
- Momentum. Finally, a stock earns a small bonus if its price has been climbing – because winners often keep winning as more investors notice and jump in.
That's most everything you need to know about a company, boiled down into a single number. Working all of that out by hand is slow, difficult work – even for professional investors, let alone a busy person trying to manage his or her own savings. That's why my team and I spent years and millions of dollars building it.
Interestingly, it turns out I didn't need to predict that Nvidia would dominate self-driving technology or AI at all.
On February 5, 2020, the day I recommended it, the Stansberry Score rated Nvidia a 77, putting it among the best businesses in the market.
In other words, the Stansberry Score is a way to find the next Nvidia without having to predict the future. It finds great companies... and the great companies take care of the rest.
Amazingly, a $1,000 investment in Nvidia on the day I recommended it would be worth roughly $34,000 today... enough to cover the entire cost of a Stansberry Alliance membership!
Here's what I want you to take away from all of this: You don't need to correctly predict the next world-changing megatrend – heck, I certainly didn't. What you do need is a reliable way to identify a world-class company before the crowd piles in, and the patience to hold it while the company does the work.
Regards,
Whitney Tilson
Editor's note: In 1999, at the height of the dot-com boom, Whitney made a huge bet outside of the tech industry, and it paid off big-time.
Since then, he has been waiting for a similar opportunity to emerge... and it finally has. It's a rare chance for 1,000% potential gains.
You can learn all the details of how Whitney identifies businesses before they soar right here.
