What a Tiny Plane Ride Over North Dakota Taught Me About Wall Street

Editor's note: The best investment insights rarely come from glossy presentations or smooth-talking CEOs. But Wall Street loves to sell narratives, not reality. As former Greenlight Capital analyst and Market Maven editor Gabe Marshank reveals in this issue, market-beating returns begin where the story ends and the numbers take over. That's the power of "numbers over narrative"...

In the investment world, it's easy to fall for a good story.

The glossy investor decks... the well-rehearsed management calls... the perfectly timed CNBC appearances. They create an illusion of clarity and control.

I saw that firsthand in 2014. I was working for David Einhorn as an analyst at Greenlight Capital, trying to crack the code of U.S. shale-oil companies.

They looked great on paper. But the spending assumptions were aggressive... and the production estimates were even more so. They were supposed to be fantastic businesses. But they couldn't seem to generate cash and grow simultaneously.

For a good business model, this should be like walking and chewing gum. In short, something didn't add up... But every sell-side report I read echoed the same bullish narrative.

So I got on a plane and flew to Bismarck, North Dakota...

Not for a slick investment bank conference, but a humdrum industry gathering in a regional hotel ballroom.

That's how we manage to see through the hype. Because real investing – the kind that helps you generate market-beating returns – often doesn't begin with a PowerPoint...

My colleague, Josh, and I headed to a nearby bar to see who we could meet. We got to chatting with a local named Tony, who became our pal for the night.

He worked a day job in the oilfields. But his real love was flying his restored, single-engine 1960s-era Mooney airplane, which looked like this...

The next morning, true to his word, he showed up at a rural airstrip ready to fly us over the giant Bakken Formation of the Williston Basin.

As I squinted through the cockpit glass at pumpjacks and pipelines, the inconsistencies were impossible to ignore.

The geography was brutal... the infrastructure was patchy... and with the seasonal challenges of operating in sub-zero winters, the operators were flat-out spending too much on growth.

None of that fit into the narrative Wall Street was peddling in its spreadsheets.

Tony laughed. "Those analysts are trying to drill wells in Excel," he told us. "It's a lot easier in a spreadsheet than it is in the real world."

That trip sealed it for me: These shale players weren't the next great American growth story...

Analysts were only accounting for the cost of drilling a well, not the infrastructure required to get the supplies to (and energy from) the wells. Capital expenditures were blowing past expectations. The whole business was spiraling into a financial black hole.

We shorted the stocks and made our firm a fortune as the story unraveled.

Eventually, just about every CEO in the industry was replaced. And all the new ones came in singing "capital discipline." In other words, they admitted they were spending too much... just as we had already figured out.

That's the power of "numbers over narrative."

Wall Street Doesn't Always Tell the Truth

By design, Wall Street sells narratives. But narratives are smooth. Reality isn't. To uncover great investments, you have to find where those two diverge.

Sometimes, the narrative is sheer panic...

In August 2003, much of the Northeast and Midwest U.S., and parts of central Canada, suffered a widespread power outage just after the stock markets closed.

Panic spread and futures plummeted. People thought it could be a terrorist attack. But my utilities analyst pulled up grid-level data and said it was simply a cascading failure.

We told Steve Cohen, who bought index futures while the rest of Wall Street froze.

The market snapped back once everyone else caught on to what we already knew. We booked millions in profits. Again, it was a case of numbers over narrative.

A management team might promise discipline. A news anchor might call something a "once-in-a-lifetime opportunity." But reality has a way of humbling the headlines.

The numbers don't care about your story... And eventually, the market follows the numbers.

So next time you hear a "perfect pitch," ask a harder question... look for the footnotes... check the balance sheet... and consider what could go wrong.

Or better yet, take a flight over the oilfields yourself. Remember, real investing starts where the PowerPoint ends.

Regards,

Gabe Marshank

Editor's note: In his career, Gabe has delivered nine-figure gains at two of the most prestigious hedge funds in the world. More recently, he has spent years behind the scenes at our firm... helping recommend 18 triple-digit winners that went on to soar as high as 899%.

Now, for the very first time, Gabe just went public with his hedge-fund-caliber strategy for targeting 300% to 500% gains on stocks you can buy in your brokerage account. He also shared the name and ticker symbol of an idea he says has 25 times upside.