The Best-Performing Stocks of the Past Few Decades Shared This One Trait

How one couple turned $30,000 into more than $300 million... The two keys to building 'generational wealth'... The eighth wonder of the world... A powerful example in long-term compounding... The best-performing stocks of the past few decades shared this one trait...

Certain stocks can build life-changing, generational wealth...

I (Austin Root) know that may sound far-fetched, but it's true. And in today's Digest, I'm going to share the best way I know how to do just that.

But first, let me tell you a quick story...

In 1957, a husband and wife named Bill and Carol Angle attended a seminar called "Investing Principles." The young Midwestern couple had heard from friends that the class was taught by a sharp young man. They figured it could be helpful in planning for their financial future.

By the end of the talk, the Angles were blown away. The presenter wasn't just sharp... He was a genius. Bill was so convinced of the potential, he stood up and announced to the room of 20 or so people that he was putting in $10,000.

Carol then upped their investment to $30,000 – half their life savings at that point. Their friends and family thought they had lost their minds.

Decades later, that $30,000 investment was worth more than $300 million.

The Angles made their fortune by trusting in a young genius starting his investment practice in Omaha, Nebraska...

You might have guessed it by now... I'm talking about Warren Buffett. The couple invested in what would eventually become Buffett's investment holding company, Berkshire Hathaway (BRK).

To be certain, Buffett is an investing legend. We've written about him scores of times over the years. But I tell this story not to heap more praise on to the "Oracle of Omaha." Instead, I want to highlight two keys to the Angles' investment success that are separate from the decision to invest with Buffett. These keys are less obvious, but just as significant.

In fact, I believe these two keys are every bit as important to building generational wealth as picking the right investments.

The first key is harnessing the astonishing power of long-term compound interest...

Super-genius Albert Einstein understood the power of compounding. He once called compound interest "the most powerful force in the universe." As he went on to say...

Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it.

Compound interest is the concept of reinvesting your profits so that your interest can earn interest. For a bond, this means reinvesting coupon payments back into the underlying bond. For a stock, this means buying shares, holding on as the price goes up, and reinvesting any dividends back into buying additional shares. (This differs from "simple interest," in which you pull out your profits each year and earn interest only on the original principal. And as you'll see in the following example, compound interest is far more powerful for wealth-building.)

Consider two investors, Mr. Simple and Mrs. Compounding...

Both investors put $1,000 in an investment that, for the sake of round numbers, pays a 20% annual dividend. Each year, Mr. Simple cashes out the dividend and puts it under his mattress, while reinvesting the original $1,000.

Mrs. Compounding, however, reinvests both her 20% dividend and the original $1,000 each year. This means in the second year, she invests $1,200 – the 20% ($200) she earned in year one, plus the original $1,000 – and 20% more than that the following year, and so on.

After 10 years, Mr. Simple's investment will triple in value to $3,000 (i.e. 10 years of 20% dividends or $200, plus the value of his original $1,000 investment). In 20 years, it's worth $5,000. And in 40 years, it's up to $9,000. Not bad.

But as you might guess, Mrs. Compounding will do even better. In 10 years, her investment is worth $6,192 – more than double that of Mr. Simple's. In 20 years, it's worth more than seven times Mr. Simple's investment, at more than $38,000.

Go out even further than that and you'll begin to see the true power of long-term compound interest. As you can see from the following table, 40 years in, Mrs. Compounding's $1,000 initial investment is worth more than $1.4 million...

It's important to note that the power of compounding isn't just about holding an investment for a long time...

It's also about owning an investment that's growing. The faster the growth, the bigger the compounding upside.

Let's revisit the example above, but with half the growth this time – or an interest rate of 10%. In that case, Mr. Simple's investment grows half as fast (like you'd expect)... But Mrs. Compounding's investment grows much slower than that. Over 20 years, her investment isn't worth $38,000... It's worth less than $7,000. Over 40 years, it's not $1.4 million but a little more than $45,000. Mrs. Compounding still does considerably better than Mr. Simple, but not by nearly as much.

In other words, the power of compounding works best with higher rates of growth and longer periods of time.

The second key to the Midwestern couple's super-wealth accumulation was that they invested with Buffett early on...

That's the most important part: The Angles made their fortune by buying Berkshire Hathaway when it was still a very small company. This is somewhat intuitive for a couple reasons...

First, if you buy before a company is well-known and is early in its success, you're likely to get a better deal on the shares than if you were to buy it later... Plus, the company has more of that success ahead of it instead of behind.

Second, every dollar of growth matters a lot more to a small company than a large one. For example, consider two popular lifestyle brand companies, Nike (NKE) and Yeti (YETI). If Nike grows sales by $1 billion this year, that represents less than 3% growth. But if Yeti grows by $1 billion in 2019, that represents growth of more than 130%.

Forbes magazine recently conducted a study on the best-performing stocks from 1980 through 2017. Not surprisingly, Berkshire Hathaway was on the list. After all, it's been called "the greatest stock market miracle of our time."

Still, you may be surprised to find out that Berkshire ranked only 15th on this list. Fourteen other companies performed better, and some – like discount clothing retailer TJX (TJX) – performed a lot better. What's interesting to note about these 14 "Berkshire-beaters" is that they're all pretty different companies. They come from multiple industries and distinct parts of the economy.

But 12 of the 14 companies did have one important thing in common: They were tiny when they began their historic runs higher.

This is the 'why' behind Stansberry Research's newest product, American Moonshots...

The successful combination of all of the above is the driving force behind our latest investment research. We seek to identify world-class businesses (like Berkshire)... that are growing fast (to harness the power of compounding)... and buy into them early on while they're still small (like the Berkshire-beaters). We want these companies to be enduring businesses so that you can own them for the long haul (further enhancing the power of compounding).

That, in a nutshell, is what we're doing with American Moonshots... And we couldn't be more excited to share this research with you.

But first, you should know that American Moonshots isn't like our typical product. In fact, what we're doing is different in three respects...

One, we aren't giving readers one new investment idea per month. Rather, we're sharing an entire, fully allocated portfolio right up front. The time to invest in these excellent opportunities is now... We don't want you to have to wait.

Two, this product doesn't come from just one part of Stansberry Research. Instead, I've worked with our entire group of more than two dozen investment analysts to identify and research stocks we believe have "moonshot" potential – companies that can turn a small stake into a life-changing fortune.

Finally, our focus has been to find undiscovered gems... companies and stocks that Wall Street and other investment research firms have overlooked. In fact, we'd bet that you've never even heard of most (if not all) of the stocks in this portfolio.

That's by design. You see, we aren't recommending shares of companies that are already blue chips. Instead, we're looking for tomorrow's blue chip... And we believe we've identified some excellent candidates.

We're off to a tremendous start...

After officially launching at the end of December, the portfolio is already off to a terrific start. Through yesterday, the Moonshots portfolio is up nearly 22%. Meanwhile, the S&P SmallCap 600 Index is up just 8% over the same period.

If you were among our subscribers who got in on day one and took advantage of these gains, congratulations... We're pleased to deliver strong gains so quickly.

If you weren't, fear not... We see a lot more of the same strong performance in the future.

You see, this portfolio is meant to perform well over the long term. We didn't recommend flash-in-the-pan momentum stocks. Rather, we focused on identifying small companies with all of the great hallmarks and investment tenets you'd expect to see in a Stansberry product. These are fast-growing, world-class businesses with thick profit margins, capital-efficient operating models, and sturdy balance sheets.

That's why we think these companies have loads more upside over the long run. We want you to be there as they continue to "rocket" higher. That's why we're going to extra lengths to make sure you know about this product. Click here to learn more and see how to access a limited-time discount to this research.

I'll end today's Digest with two words of caution...

First, notwithstanding the solid performance to date, American Moonshots is intended to represent just a portion of your investment portfolio – likely no more than 20%.

Remember... while diversified, Moonshots is full of tiny companies. That means they're likely to be more volatile than larger stocks... and some could fall by a lot more than the market during a broad sell-off. We want you to limit your exposure based on your own appetite and tolerance for risk, and we want you to generate loads of upside in your portfolio, but you need to stay disciplined.

Second – and we cannot stress this one enough – take your time buying these stocks and building your positions. Only buy when a stock is trading below its "buy up to" price.

These stocks are small – some very small – and relatively unknown. Many won't have a lot of trading volume. If and when a position takes off, you must wait for it to fall back below its maximum buy price to buy in.

We have conviction that these are excellent long-term investment opportunities, but we want you the get the best returns possible. That requires discipline when buying.

We hope you join us for the journey. Again, you can click here to learn more.

New 52-week highs (as of 1/10/19): none.

In the mailbag, a few readers tell us they've enjoyed our coverage of the annual International Consumer Electronics Show. If you missed those Digests, you can catch up here and here. In the meantime, please continue to send your e-mails to feedback@stansberryresearch.com.

"Dave Lashmet: Thank you for the recommendation on Loxo and 184% profits. We appreciate your work!" – Paid-up subscriber John

"I really enjoyed your 'looks inside' CES this year. I've never been to one of those but know about it. It's a real treat to hear your reports and see shots of some of the displays! Very cool stuff! And I would love to go toe-to-toe with that ping-pong-playing robot! The only problem with that is, even though I'm really good at that game (I'm ambidextrous, so I can literally switch hands while playing), the robot will just rise to my skill level by watching me... Hmmm – might be a short, but really fun session before it gets the upper hand on me though... Seriously, thank you so much for doing these special 'inside CES' videos! I really appreciate that special effort – you guys are clearly having a very fun week and it's great of you to give us a peek too!" – Paid-up Alliance member Shawn S.

"Love the inside scoop from CES. Keep the Videos coming. Love it!!" – Paid-up subscriber R.K.

"To quote your article, 'Think about what happens when you don't need a factory staff of 3,000 workers... ' How about this, think about what happens when you don't have 3,000 workers to run a factory. That's closer to reality. There are help wanted signs everywhere. Lockheed Martin in my town has hundreds of openings. People are not replacing themselves. The Wall Street Journal had a story today about 30 yr lows with birthrates – 1.765 kids per couple. That isn't going to cut it. It's troubling for many aspects of the economy, even China recognizes it. Hopefully, Robotic hospital nurses will be warm and coddling. The 0 – 1.765 kids will most likely not be available for those in need. As a note, I have been blessed with a large family." – Paid-up subscriber G. Hall

Regards,

Austin Root
January 11, 2019
Baltimore, Maryland