Here's How to Beat Wall Street at Its Own Game

In the past two-plus decades, I have learned some valuable investing lessons... As some of you know, my journey to launch Empire Financial Research – which is now in the process of integrating operations with our corporate affiliate Stansberry Research – was unique. In late 1998, I raised $1 million to launch my own hedge […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily Weekend] Here's How to Beat Wall Street at Its Own Game By Whitney Tilson --------------------------------------------------------------- ['Slowly, Then All at Once... This Is How Trust in Government – and Your Life Savings – Disappears']( Porter Stansberry just returned after three years with a big warning about 2023's historic bond market meltdown... and what's coming next. [Click here for the details](. --------------------------------------------------------------- In the past two-plus decades, I have learned some valuable investing lessons... As some of you know, my journey to launch Empire Financial Research – which is now in the process of integrating operations with our corporate affiliate Stansberry Research – was unique. In late 1998, I raised $1 million to launch my own hedge fund... without any formal training. They say it's better to be lucky than good. I'd like to think I was a little of both. Over the next dozen years, I grew assets under management to $200 million, nearly tripling my investors' money in a flat market. Toward the end, though, I made some key mistakes. I worried about another downturn, so I was too conservative with my portfolio... I took profits too quickly, held too much cash, and shorted too many stocks. These kinds of missteps are incredibly common, but they destroy your profits over time. That's why I had started Empire Financial Research – to share the lessons I've learned over the past few decades on Wall Street with individual investors like you. So in today's essay, I'm going to show you the four steps that individual investors can take to beat the market over the long run – including one that can help put you ahead of the pros... The first step is the most important: effective portfolio management... It was only through hard experience that I came to learn that stock-picking is only half the battle. The other 50% of investing is managing your portfolio, which can create or destroy as much value as the stocks you own. To borrow a baseball analogy, your batting average matters a lot less than your slugging percentage. It's not how many of your picks are right... it's how much money you make when you're right versus how much you lose when you're wrong. If you're sitting on a big winner that runs up 50% or 100%, trimming your position can stunt your returns tremendously. The opposite is true, too. When you hang on to your losers for way too long – or worse yet, average down on your position – your losses can mount quickly. It's critical to have the judgment, humility, and fortitude (which all come from experience) to know when to let your winners run and cut your losses. In October 2012, I had nearly 5% of my portfolio in video-streaming company Netflix (NFLX), right at its multiyear lows. And then it took off, becoming one of the greatest stocks of all time. But even though I had publicly predicted almost exactly what would happen, I only made about a tenth of what I should have – about $10 million on what could have been a $100 million winner. As the stock moved up, I kept selling and eventually exited far too early. Had I simply gone away on a five-year vacation, I would have done far, far better – the stock has been a multibagger since then! --------------------------------------------------------------- Recommended Link: [A Rare Market Event 50 Years in the Making Is Happening NOW]( A predictable shift is playing out once again, which could hand you huge profits if you know what’s coming. A small number of folks have been preparing for this exact moment, but 99% of investors will miss out. [Get the full details here](. --------------------------------------------------------------- It's also critical to give your investments enough time to let your thesis play out... One of the biggest advantages individual investors have over professional money managers is the lack of short-term performance pressure. Even the people who manage endowments and pension funds – which by definition have multidecade investing horizons – are evaluated on a short-term basis, sometimes even monthly. But sometimes, stocks can remain cheap for years before the tide turns. It reminds me of something investing legend Warren Buffett once said... All I want to do is hand in a scorecard when I come off the golf course. I don't want you following me around and watching me shank a three-iron on this hole and leave a putt short on the next one. Meanwhile, 99% of the money in the world is managed by people who feel someone looking over their shoulders, ready to scold them for any mistake. Sometimes, stocks are cheap because they have no short-term catalyst to push shares higher. This means that they can languish for a while... But I don't try to anticipate when other investors' sentiment will change. It's not the end of the world if a cheap stock remains depressed for a while... as long as you have an appropriate investing horizon. I'd argue the only money you should be investing in the stock market is money you don't need for three to five years. That sort of time frame gives you the patience to wait for high-quality stocks to go "on sale" and for your cheap stocks to start to move (assuming you're right that they're cheap!). Next up is another core tenet of value investing: buying when the odds are in your favor... In the value investing community, this goes hand in hand with what the father of value investing Benjamin Graham called the "margin of safety." Imagine you're driving a big truck over a bridge with a lot of other trucks on it that weigh a collective 49 tons. How would you feel if the bridge were engineered to hold only 50 tons? When it comes to important things that your life – or financial future – depend on, you want to give yourself plenty of room to be wrong. Ideally, you want to consistently buy stocks where, if you're right, you double your money (or more) in two to five years, and if you're wrong you only lose a little. The last way you can put yourself in the position to beat the market is by concentrating your portfolio in your best ideas... Over the last half-century, a handful of folks figured out that Buffett is an investing genius, so they put their entire net worth into his holding company, Berkshire Hathaway (BRK-B). That has obviously worked out well for them, but I highly recommend against such extreme concentration. I think most investors should own somewhere between 10 and 20 stocks. This provides reasonable diversification, yet also allows you to concentrate on your best ideas. The idea that any one investor can have real, proprietary insights – what I call "variant perceptions" – across dozens of stocks is hard to imagine. But by focusing on a handful of situations where you have an edge over the market, you're likely to do far better than you would by owning dozens of stocks. Best regards, Whitney Tilson P.S. For a further edge over the market, my good friend Porter Stansberry's special briefing is a must-see to get his take on what's coming next... In it, Porter explains why the economic problems he's seeing will spread further than most people think. He also shares one strategy that can help you protect – and grow – your wealth... regardless of where the market heads from here. [Click here for the full story from Porter](. © 2023 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 1125 N. Charles Street, Baltimore, Maryland 21201 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](