Tue, Dec 23, 2025|Whitney Tilson

The secret to 'superior performance' in investing

Today, I'm expanding on a key presentation in yesterday's e-mail on my seminar on "An Introduction to Finance and Investing"...

As I explained yesterday, I don't have any plans to teach another formal seminar on finance and investing like the one I gave to two dozen high school and college students (including one of my own daughters) in 2018.

However, my collection of materials that I assembled has received a lot of nice reader feedback.

It's a number of articles, videos, and slide presentations that I've put together over the years to teach the basics of finance and investing.

You can see the full four slide presentations I shared here:

For the latter two presentations – the ones more heavily related to investing – I'll share the key slides in this e-mail and my next one. And I'll share my commentary.

(Note that there are two videos of me teaching "Understanding Financial Statements" in yesterday's e-mail. You can watch part 1 here and part 2 here.)

In my "How to Achieve Superior Performance" presentation, I start by addressing the first step: developing a strategy for active investing. Here's the slide:

Your answers to these questions should be rooted in an honest assessment of your "edge."

If you don't have one, that's OK – for many folks getting started with investing, sticking to index funds is easier.

When it comes to an edge:

My experience and observation are that successful money managers combine both the right approach and the right person. Regarding the former:

Successful money managers and famed investors also tend to have the following personal characteristics:

Once you've developed a strategy, you need to focus on the tactics...

Which of the three ways of beating the market are you going to focus on?

For me, the answer is 90% stock picking and 10% market timing (every five to 10 years, I develop a strong conviction that the market is extremely overvalued or undervalued and adjust my portfolio accordingly).

So let's focus on the former – stock picking...

To pick stocks that beat the market, you need to understand other investors' expectations:

Therefore, it logically follows that to beat the market, you need to occasionally – perhaps as infrequently as once a year – have a viewpoint that is at odds with the consensus view.

Legendary hedge-fund manager Michael Steinhardt calls this a "variant perception":

In particular, before buying a stock, you should be able to clearly articulate how and why you think a company will perform better than current expectations. This will therefore lead to its stock outperforming the market.

It's helpful to break this down into three factors that drive most stock prices:

I use a three-step process for evaluating stocks...

The first is determining whether I understand the company and industry well enough to develop a variant perception:

Then I analyze the company and industry:

Lastly, I evaluate management:

So let's say you find a company you understand well, determine that it and its industry have attractive and enduring characteristics, and know that it's run by a great management team.

Time to buy the stock, right?

Not so fast...

It's actually easy to find plenty of companies with these characteristics. The problem is that every other investor usually sees exactly what you see. And therefore, the stock price reflects this.

So the critical fourth step is to think about valuation.

You're looking for a company that, for some reason, is out of favor enough that its stock is trading below what it's really worth (its "intrinsic value") – and not by a little bit, but by a lot (creating a large "margin of safety"):

According to the legendary Warren Buffett, intrinsic value and margin of safety are the two most important concepts in investing.

So here's some background on both in these next two slides:

And in these last two slides, I'll conclude with some thoughts on valuation. That's the most important (and difficult) part of investing:

In my next e-mail, I'll share the slide highlights of my other presentation on investing: "The Best of Value and Growth: Make Money Investing"... Stay tuned!

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.

P.P.S. Our offices will be closed tomorrow and Thursday in observance of Christmas. Look for my next daily e-mail on Friday, December 26... and have a wonderful holiday!