🧠 A Surprising Trait of Our Greatest Investments

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Over a decade ago, all three of us made the most consequential financial decisions of our lives. And yet, they were ridiculously anti-climactic at the time: we hit the “BUY” button in our brokerage. No trumpets sounded; no parties were hosted. We went about our day.

However, with the passing of time, the significance of those decisions has exploded. For Feroldi, it was the 2012 purchase of Tesla (up ~12,000%); for Stoffel, the 2017 purchase of Shopify (up ~1,000%); for Withers, the 2018 purchase of The Trade Desk (up ~1,700%).

All three of these companies shared a peculiar trait when they were bought: they were either unprofitable (Tesla & Shopify) or barely profitable (The Trade Desk).

Does this mean that investors should focus all of their attention on finding unprofitable businesses? Absolutely not! Does it mean that all unprofitable businesses will be great investments? That’s an even BIGGER no!

What it means is that the market is naturally skeptical when it comes to unprofitable companies. That makes complete sense. Most unprofitable businesses flame out. But that pessimism is also exactly what causes such investment to be so successful. If those companies can execute against their opportunity — which is a huge if — the market will eventually take notice and the stock is off to the races.

Here’s the tricky part: how can investors tell if a company will succeed or fail? That’s a hard question to answer, but we think two factors play an outsized role: 1) the company must have an identifiable moat, and 2) it must balance its growth and profitability carefully. If it leans too heavily in either direction – growth or profitability – it can quickly teeter off course.

How can you tell if a company is balancing growth and profitability successfully? Join us for a free webinar, How To Analyze Unprofitable Businesses, tomorrow (Thursday, October 12th) at noon EDT. We’ll provide some data & “rules” that answer that very question. Click here to register instantly.

Wishing you investing success,

– Brian Feroldi, Brian Stoffel, & Brian Withers

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One Simple Graphic:

One Piece of Timeless Content:

David Gardner, one of our favorite investors, published his investing criteria to the public in 2005. His “rulebreaker” investing style paid off amazingly over the next few decades. The linked article was republished in 2016, and we think it is still relevant today.

One Thread:

Ever wonder why Warren Buffett says, “It’s far better to buy a wonderful business at a fair price than a fair business at a wonderful price.” Get a cup of coffee and take in 10K-Diver‘s thread as to why it’s true.

One Resource:

How To Money is one of the world’s most popular personal finance podcasts, and for good reason. Joel & Matt have shared practical money advice on their podcast for over six years. The duo recently launched a weekly newsletter that contains fun money stories, financial nuggets, and a weekly news roundup. Check it out & subscribe!

One Quote:

More From Us:

🎥 Join us on Thursday, 10/12, at noon EDT for our free webinar: How to Analyze Unprofitable Businesses. Click here for information and to register.

👨‍🎓 NEW! Our brand new course — Advanced Financial Statement Analysis — starts on October 30th! See the details and join the waitlist.

📗 If you’ve read Brian Feroldi’s book, he’d love a review.

👨‍🎓 Need help getting your personal finances in order? Click here to start​ our 5-day Financial Wellness email course. It’s completely free.