Doc's note: Even the greatest investor in the world hasn't always gotten it right...
As Marc Chaikin – founder of our corporate affiliate Chaikin Analytics – explains today, Warren Buffett's well-known investing approach caused him to miss out on some massive opportunities...
Warren Buffett didn't need to believe in miracles to become a billionaire...
In fact, he actively avoided them.
As he told the audience during Berkshire Hathaway's (BRK-B) annual meeting in 2018...
If I think something will be a miracle, I tend not to bet on it.
It sounds like a smart move. But Buffett missed some of the market's biggest gains because of it...
As you probably know, Buffett is famous for only investing in businesses that he understands. This strategy means that he has avoided plenty of tech stocks.
During that 2018 Berkshire meeting, someone asked him whether he was changing his approach.
Specifically, an audience member wanted Buffett's opinion on Amazon (AMZN) and Google parent Alphabet (GOOGL).
He noted that these companies had both built a "durable competitive advantage" – something Buffett has always looked for. That's a fancy way of saying they don't have much serious competition.
As usual, Buffett spoke bluntly in his response. As he said...
The truth is that I've watched Amazon from the start, and I think what Jeff Bezos has done is something close to a miracle. And the problem is, if I think something will be a miracle, I tend not to bet on it.
The audience laughed.
Buffett explained that it wasn't about avoiding tech stocks. He simply wasn't comfortable predicting the competitive landscape. And he said that was especially true for Google.
As he continued...
But I made the wrong decision on Google. And Amazon... I really consider that a miracle, that you could be doing Amazon Web Services and changing retail at the same time... without enormous amounts of capital, and with the speed and effectiveness of what Amazon has done...
I had a very, very, very high opinion of [Jeff Bezos'] ability when I first met him. And I underestimated him.
This is a great example of why Buffett is an investing legend...
It's not just about his incredible performance over the years. He's honest about his mistakes. And he admits the flaws in his approach.
Buffett spent decades analyzing businesses. He has been brilliant when it comes to financial companies like banks and insurers. His experience stretches across plenty of other industries – ranging from industrials to consumer products.
There's a ton of competition in established industries. By contrast, companies like Amazon got a huge lead by building new industries – like online retail – from scratch.
To Buffett, Amazon's success looks like a miracle.
But the stock market saw an opportunity in Amazon more than two decades ago...
These Critical Signals Predicted Amazon's 'Moonshot' Growth
Amazon has been an incredible investment over the long run...
Its stock started outperforming the rest of the market almost immediately after the tech bubble burst in 2000 and 2001.
In 2002, Amazon surged more than 74%. The next year, it soared roughly 180%. In total, that's a 387% gain in just two years.
By comparison, the S&P 500 Index fell by more than 2% over the same time frame.
Put simply, there were plenty of signs that something important was happening at Amazon over the years...
From 2002 to 2018, its stock outperformed the rest of the market in 12 out of 16 years. That's a win rate of 75%.
More importantly, Amazon generated a gain of more than 13,000% over that 16-year period. That compares with a roughly 119% gain for the S&P 500.
Folks, you didn't have to be an expert to spot Amazon's uptrend...
The market gave investors plenty of signals – in the form of big, market-beating gains.
Amazon didn't beat the market every year. But the "up" years more than made up for the handful of "down" years.
Keep in mind, the numbers we've discussed all pre-date the COVID-19 pandemic...
As you probably know, the pandemic added even more fuel to Amazon's growth.
Folks bought more stuff online. That boosted the company's online retail business. All of this also accelerated growth in the company's Amazon Web Services ("AWS") unit.
When you look at the big picture, Amazon has delivered around 50,000% return since the start of 2002. Take a look...
Again, you didn't need to be an expert to see that something big was happening at Amazon...
You just needed to pay attention to what the stock market was saying.
That's exactly why I created the Power Gauge...
Using My One-of-a-Kind System to Navigate the Year Ahead
Regular readers know that the Power Gauge is a powerful tool that can instantly analyze a company's fundamentals. And it also looks closely at the technical factors – the market's signals about a stock's future.
Folks, the Power Gauge will be especially valuable for us in the months ahead...
In short, the stock market is still in a long-term uptrend. But I'm keeping an eye out for signs of deteriorating conditions.
No matter how 2026 plays out, the Power Gauge will be my guiding light. It will help me spot the best opportunities. And just as important, it will help me avoid the market's most dangerous stocks.
Good investing,
Marc Chaikin
Editor's note: On Thursday, Marc and master trader Jonathan Rose are unveiling a new "Smart Money Super-Signal" that is designed to show you 10 chances to double your money in their model portfolio over the next 12 months. And it's already firing on specific stocks.
