Why 'Good Enough' Has Never Been Good Enough for Me
Editor's note: A lot of factors determine whether you make money in the markets. But one is easy to control: your pursuit of real quality.
In today's Weekend Edition, we're taking a break from our usual fare to share an essay from Stansberry's Investment Advisory editor Whitney Tilson. Whitney has made millions of dollars for himself and other investors over the course of his career. And as he'll explain today, a lot of his success boils down to one thing: He never settles for "just OK."
A few years back, I completed my seventh World's Toughest Mudder competition.
It's a 24-hour race where you complete as many five-mile laps as possible, each with around 20 obstacles – including live hanging wires, mud, freezing water, monkey bars, nets, barbed wire... well, you get the picture.
Most people hear that and ask the obvious question: Why on earth would anyone choose to do this?
It's a fair question – and my answer is the reason I have a major advantage in the markets.
The Toughest Mudder is just one of my obsessions. Over the past decade, I've climbed some of the most demanding mountains on Earth – including the Matterhorn, the Eiger, and Mont Blanc.
In 2015, I spent two and a half days at a Navy SEAL training camp with my longtime friend Bill Ackman, a billionaire hedge-fund manager. We swam two miles through 59-degree ocean water in the middle of the night, carried 200-pound logs down a beach, and crawled through sand during a drill so brutal the instructors simply called it "torture." When it was over, I could barely walk.
Simply put, I am incapable of doing anything half-assed.
For most people, "good enough" is acceptable. And honestly, most of the time, that's fine. "Good enough" gets a lot of people through the week.
But if I'm going to climb, I want the hardest peak. If I'm going to race, I want to win. This idea has governed my entire life: It's not worth doing anything unless you're chasing the very best.
So why should any of that matter to you?
Because my first obsession was the stock market... And I bring the exact same relentlessness to investing that I bring to a 24-hour race.
Let me show you what that approach means – and how you can use it yourself...
How I Bring the Fight to the Markets
1. I'm ruthless about what I'll accept.
When a process is designed to reject almost everything, the handful of things that survive are, by default, extraordinary. That's true of Navy SEAL selection and mountain climbs, and it's true of investing, too.
Most investors do the opposite. They get excited, cast a wide net, and buy a little of this and a little of that. Not me. I throw out the vast majority of possibilities. I want only the best of the best of the best – nothing less makes my list.
2. I have the mental toughness to hold on when things get ugly – and sooner or later, things always get ugly.
Every investor, no matter how talented, will eventually hit a rough patch. Even Ackman, largely considered one of the great investors of the past few decades, lost money for his clients in 2015, 2016, and 2017.
When (not "if") these stretches happen, will you get emotional and panic, making a bad situation worse? Or will you carefully evaluate and take the right steps to turn it around?
The physical and mental resilience I've built up has helped me successfully navigate a number of difficult periods. You have to get comfortable with adversity.
3. I know the real gains come from staying in the game for the long haul.
Do you know why Warren Buffett is one of the richest people in the world? In part, of course, it's that he has compounded money at a high rate. But most people don't fully appreciate the second part of the equation: He has done it for a long period of time.
Buffett started investing when he was only a boy and continued well into his 90s. He accumulated the vast majority of his wealth after he turned 70 – an age at which most people have retired.
I plan to keep building wealth – and staying active, for that matter – well into my 70s, 80s, 90s, or even longer.
These three kinds of persistence aren't just theoretical advantages, either. Let me show you how my relentless pursuit of greatness led to huge returns when I was managing money...
Deeper Market Research Leads to Profits
Back in 2013, one of the hottest stocks on Wall Street was a flooring retailer called Lumber Liquidators.
Its same-store sales were booming. Its profit margins were the envy of the entire industry. Analysts were falling over each other to recommend the stock. For a "good enough" investor, Lumber Liquidators looked like a great bet.
But something gnawed at me...
Flooring is a brutal, cutthroat, low-margin business – and yet Lumber Liquidators' margins were nearly double what its competitors could manage. While everyone else saw a great growth story, I saw a situation that made no sense.
So I did what most investors wouldn't. I started digging. I kept asking how it was possible that a company selling the same wood floors as everyone else was earning twice the profit. I concluded that Lumber Liquidators had to be cutting corners on the product itself.
I was so convinced that I brought my findings to the investigative team at CBS's 60 Minutes.
They ran with it, smuggling hidden cameras into the Chinese factories that supplied the company. Posing as buyers, they caught the factory managers on camera openly admitting they were selling toxic, non-compliant flooring.
As CBS's investigation showed, I was right. Lumber Liquidators was importing laminate flooring from China that was drenched in formaldehyde – a known carcinogen – at levels that violated U.S. safety standards. To pad its margins and prop up its stock, the company was quietly poisoning its own customers.
When the story aired, the stock collapsed. And it kept falling, dropping nearly 90% over the two years that followed. And because my research had convinced me to bet heavily against the company before any of this became public, I made roughly $4 million for myself and my investors as the truth came out.
When a company's numbers look too good to be true, don't accept them at face value. Ask how they're possible.
A profit margin that can't be explained honestly is one of the most reliable warning signs on Wall Street... And refusing to settle for an easy answer is what separates the investors who get blindsided from the ones who get paid.
That's what "good enough isn't good enough" looks like on a balance sheet.
The greatest lesson I've learned in life – and investing – is simple: Quality wins. Success comes to the people who work the hardest and the companies that do things the right way.
That's why I'm incapable of settling. I treat picking stocks with the same obsessiveness I bring to a frozen mountain face or a national news story.
And on September 10, I'm going to share the details on a short list of companies that passed my rigorous filter.
"Good enough" has never been good enough for me... And it shouldn't be good enough for your money, either.
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's been waiting for a similar opportunity to emerge... and it finally has. On Thursday, he's unveiling the brand-new stock-filtering system that helped him identify it. Reserve your spot for his presentation now.