'Selling your winners and holding your losers is like cutting the flowers and watering the weeds'; X May Lose Up to $75 Million in Revenue as More Advertisers Pull Out; Social Security recipients struggle to pay back agency after unexpected overpayments; Pictures from Botswana and Victoria Falls
1) This post on X creates a knot in my stomach:
Despite reading Peter Lynch's two books, One Up on Wall Street and Beating the Street, and everything by and about Warren Buffett, I still ignored their admonitions and fell into the trap of cutting my flowers many times...
I owned shares of Apple (AAPL) at $0.35, Amazon (AMZN) at $2.40, Ross Stores (ROST) at $1.53, McDonald's (MCD) at $12.80, Netflix (NFLX) at $7.78, Home Depot (HD) at $23.15, Jack in the Box (JACK) at $7.69, AAON (AAON) at $1.62, and Yum Brands (YUM) at $8.17.
Every one of these stocks was at least a 10-bagger, many were 20-baggers, AAON (an obscure maker of commercial HVAC units) was a 40-bagger, Amazon a 61-bagger, Ross an 86-bagger, Netflix (at its peak) a 90-bagger, and Apple a more than 500-bagger!
Of course, I invested in plenty of stinkers over the years... but simple math will tell you that even one of these massive winners I identified early would make up for a dozen losers.
However, I didn't make even a tiny fraction of the profits I should have because I sold them much too soon.
This underscores one of the most important elements of successful long-term investing: You must let your winners run!
There's an old saying on Wall Street, "Pigs get fat, hogs get slaughtered," which cautions against being greedy.
I disagree.
If you're looking in the right places for high-quality businesses whose stocks are attractively priced (as my team and I do here at Stansberry Research), every once in a while, you're going to invest in one that doesn't just double but goes up five, 10, 50, or even 100 times.
To build a successful long-term track record, you must be greedy when opportunities like this arise! Investing in a moonshot stock only happens maybe once a decade – or even once in a lifetime. So it's critical that you make the maximum amount of money when you have the good fortune to have this happen to you.
I gave a great example of this earlier this year when I wrote about my friend Chris Stavrou's experience with the A-class shares of Berkshire Hathaway (BRK-A):
My friend Chris Stavrou, who ran a small hedge fund called Stavrou Partners for decades, bought shares of Warren Buffett's Berkshire Hathaway back when he was a stockbroker in the 1970s.
Chris started buying it for his clients around $400 a share, even after it had risen more than 2,000% over the previous decade because he didn't fall into the "I missed it" trap.
A decade later, he opened up his own hedge fund. By then, Berkshire was trading at an all-time high of $1,800 per share.
So did he say to himself, "Wow, this stock has moved up a lot – I think I'll wait for a pullback" or "Drat, I missed it"?
No. He saw that it was a great company run by a brilliant investor and the stock was still attractive at $1,800. So he bought it for his nascent fund.
And then Chris did something even more important than buying the right stock: He didn't sell!
Chris didn't sell when BRK-A shares soared past $5,000, $10,000, $25,000, $50,000, $100,000, $250,000, and even $500,000 (they closed Friday at $549,500).
In contrast, consider my experience with Netflix...
When I bought the stock in 2012, Netflix was deeply out of favor. Investors were worried about rising competition and content costs, as well as the company's plan to spin off its DVD-by-mail business into a new entity called Qwikster (a silly idea that Netflix soon abandoned).
Meanwhile, I saw a business with a product that customers loved that was more than 10 times bigger than its nearest competitor and was growing like a weed. Sure enough, shares soon took off. Two years later, the stock was up 600%.
As Netflix soared, all I had to do was sit back and profit from correctly identifying one of the greatest stocks of all time. Instead, I sold half my shares once the stock doubled. And then, I sold some more shares when it doubled again. As the stock was doubling another time, I exited the position completely.
I thought I was being a prudent risk manager, and I congratulated myself for making 7 times my money...
But in reality, I shot myself in the foot.
If I had simply held on to my original position in Netflix, I could have made more than 10 times what I ultimately made. That's a costly mistake...
That's not to say you shouldn't ever sell a stock that's working for you. It's important to control position sizes to manage risk, of course. And it's even more important to be attuned to fundamental changes in the story.
Old-school camera-maker Kodak was a great company and stock for decades... until digital photography came along. Then the stock turned into a "value trap" that lured in many smart investors, who eventually lost everything when the company went bankrupt in 2012.
2) The speed and magnitude of Musk's destruction of what was once Twitter may well be unprecedented in business history... Here's an article about it from the New York Times: X May Lose Up to $75 Million in Revenue as More Advertisers Pull Out. Excerpt:
X, the social media company formerly known as Twitter, could lose as much as $75 million in advertising revenue by the end of the year as dozens of major brands pause their marketing campaigns after its owner, Elon Musk, endorsed an antisemitic conspiracy theory this month.
Internal documents viewed by the New York Times this week show that the company is in a more difficult position than previously known and that concerns about Mr. Musk and the platform have spread far beyond companies including IBM, Apple and Disney, which paused their advertising campaigns on X last week. The documents list more than 200 ad units of companies from the likes of Airbnb, Amazon, Coca-Cola and Microsoft, many of which have halted or are considering pausing their ads on the social network.
3) Kudos to 60 Minutes for exposing this outrageous behavior by the U.S. Social Security Administration: Social Security recipients struggle to pay back agency after unexpected overpayments (transcript here and video here). Excerpt:
Roy Farmer was 11 years old when his family last received Social Security benefits for him. Farmer has cerebral palsy; as a child, he had leg braces and couldn't walk.
More than two decades ago, Social Security determined he was no longer medically eligible for benefits. His family received several thousand more dollars while Farmer's mother appealed the decision. The appeal was eventually denied, and the money sent to the family over the course of the appeal was deemed an overpayment. Two years ago, Farmer learned that the Social Security Administration expected him to pay back that excess money his mother received when he was a child.
Farmer is one of about a million people getting billed each year over miscalculated payments from the Social Security Administration. Retirees and disabled workers are being told to pay up, and it often doesn't matter whether they're at fault or not.
The Social Security Administration has a balance of more than $20 billion in overpayments, according to a November 2022 report by the agency's inspector general. A spokesperson said the agency is "required by law" to recover overpayments.
4) My family and I just got back from our trip to Africa! Here are some pictures from the past two days:
For more pictures, videos, and descriptions of our past five days in Botswana and Zimbabwe, see my Facebook posts here:
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.
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