When it comes to stock picking, I’m never happy. Some stocks I recommend to my subscribers end up being losers. It’s always a crummy feeling when we exit a position that hasn’t lived up to its potential.
But sometimes you need to cut your losses and move on to the next opportunity. That’s just part of the investing game. No investor anywhere has a 100% successful track record. Albeit for a few months over 2017 and into 2018 when our crypto recommendations were all showing huge gains…but even that didn’t last.
Nonetheless if you think a losing stock position is bad, you should see what it feels like to have a winning one!
You’d think that it’s a feeling of elation and self-congratulation. And to a certain degree I hope it is for my subscribers. But for me, it’s a challenging time.
It’s easy to exit a losing position. You’ve lost money, you can easily justify getting out of the stock. You tend not to linger on those too long.
What’s hard, what’s really hard, is to know when the right moment is to tap out of a winning position.
Let me give an example of one we got right…
When winning is losing
In late 2013 I began to write to my subscribers about a semiconductor company that had a long history in computing and graphic processing. The company was NVIDIA Corporation [NASDAQ:NVDA]. My argument was this company would be central to the coming revolution in augmented reality and automation of our world.
We rode with NVIDIA for the next four years and then in January 2018 we made the excruciating decision to sell. By this stage we were sitting on a gain of more than 1,400%.
While that kind of performance some stock pickers never find, I wasn’t completely thrilled about it. I had a lingering doubt that I’d got out just a little too soon. By this stage NVIDIA was around US$235.
And I was right, NVIDIA would go on to charge up to US$292 as their all-time high about eight months later. We got out too soon. But then US tech stocks had a stumble. And a year after we got out of NVIDIA the stock was trading about US$100 less than our exit point.
That’s a success.
But then there’s the ones we get wrong…
Appen Ltd [ASX:APX] had been in one of my buy lists since March 2015. It too we had followed diligently, watching, waiting for them to capitalise on their full potential.
And they did.
Appen is one of the ASX’s best performing stocks over the last few years. It was one of ours too. Except we made a crucial error. We thought that when Appen had delivered a 1,010% gain that it was time to take profits off the table.
We had watched Appen’s stock price trade with great volatility and we were of the view the business had reached full potential early on. We were wrong. When we sold out of Appen its stock price was around $7.76.
Today it sits at $25.34 and its 52-week high is $32. Had we held onto Appen another year and a bit that 1,010% gain would have been more like 3,486% based on recent prices.
That’s a success, but kind of a failure too.
I mean you’d like to have a 1,010% gain, right? But wouldn’t 3,486% be better.
That’s the difficulty in stock picking…even when you’re absolutely right, you can still be wrong.
But we learn from these experiences. And importantly we learn that with stocks, playing the long game has the potential to deliver untold riches for those who share our vision of the future.
Getting the theme is as important as the stocks
Every few years I take a couple of months to work through in detail my vision of the future. That might come across as a little pretentious. But it’s an important part of the process of figuring out what industry is going to be important and valuable in our future world.
You see for a lot of people the capacity to look at what’s coming tomorrow is beyond reach. Most people are able to see what’s in front of them, to see what impacts them directly now. But it’s really hard to piece together fragments of information to understand what’s coming tomorrow and how that will change the world.
To do that you need a couple of things on your side:
- Access to immense amounts of information
- Time to filter, process and analyse that information
- The ability to synthesise the outcomes into actionable events
If you can do that, then you can get an educated idea of what the future might hold. And sometimes it ends up in crazy ideas. Like one of my recent mega future trends of transhumanism.
This is the idea that the gap between biology and bionic will continue to close. That as humans we will use technology in ways to augment our biological selves.
I’m not necessarily talking about freakish implants and terminator style human-machine symbiosis. I’m talking about examples such as the ability to link the brain to computer interfaces, to utilise machinery like exoskeletons and wearable mechanisms to be stronger, more agile and more efficient in our day-to-day lives.
The benefits of this megatrend impact everything from manufacturing and the services industry, to aged care and health care. It’s wide reaching and over time, potentially immensely lucrative.
But this is just one vision of the future I’ve identified. There are others, and it continually evolves and updates. After all, if the 19th and 20th centuries were the ages of the Industrial Revolution, then the 21st century is the age of the Technological Revolution.
For me getting this vision of the future dialled in is almost more important than finding great stocks. What I mean by that is, if you can identify the big areas of opportunity, finding the quality companies in the mix is relatively easy.
Finding the massive profit-making megatrends is the hard part. Looking through a company’s financials, roadmap, technical papers, that’s a breeze. And that’s why getting the bigger theme right is as important (if not more) than the stocks themselves.
Editor, Money Morning
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