How can you hit a homerun in the Stock Market? We’ve studied every quantitative measurement and objective data set across the history of the markets, finding all sorts of fascinating facts in our evidence lab.
See if anything comes to mind as you look at the 10 biggest winners, over the past 25 years. What may surprise some investors is this list is not dominated by several game-changing technology stocks. There are only two of those. That last one shown below, up almost 359k%, has drawn a lot of attention but we love the fact that most investors still haven’t heard of a few others on this remarkable roster. What do you think is the only one ingredient they all had in common?
Technology, Consumer Discretionary, Industrials, Financials, and Energy sectors all made the cut and are represented here. Keep that in mind the next time you hear the crowds convinced which sector is the best to invest in now for the biggest upside. According to our objetive homework, it’s better be balanced across different sectors in order to increase your odds of finding unusual success. So what is it? What is the only thing they all had in common before these moonshots could mathematically even have a chance to begin?!
Fair warning, it’s going to be so obvious you might even curse at the screen you’re reading this on. Our feelings won’t be hurt and aren’t allowed in our selection criteria anyhow.
Some secrets are hiding in plain sight but completely lost by the crowds of swirling opinions and predictions about what will be the next homeruns on this list, 25 years from now…
They each started out as small or mid cap sized stocks.
Safe, Sacred THEN Speculative
In our experience, the key to unlocking this treasure chest of potential winners is not an ability to predict them (history is littered with the egos of those doomed track records). The key is using the right kind of money to begin with, that cannot be scared. The majority of every nest egg we are entrusted to manage is balanced between risk-free Safe accounts alongside dividend producing Sacred accounts. Those combined income streams allow the seeds for smaller Speculative accounts to be invested in the public and private markets. The qualifying question is simply – what small portion of my nest egg will I not need access to withdraw near-term? Not using scared money to take risks with is your biggest advantage, in any market.
Speculating for “Holy Shit” Homeruns
Simply dividing any sized nest egg into Safe, Sacred & Speculative assets not only defeats any complex pie chart or Wall St. allocation models in terms of better understanding, but it opens the door for unconstrained upside.
“Simple can be harder than complex. You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there you can move mountains.” – Steve Jobs
We bought our original stake in Apple with our partners on 1/24/07, at $3.09 per share. We were not brilliant, nor could we predict the future. Our biggest advantage was curiosity, combined with a very small amount of risk capital with strict sell disciplines when we are wrong.
We share this example not to cherry pick from success, we are lucky to own stakes in half of that magical list of ten stocks above. The reason Apple stands out to us as particularly helpful today is the wink from above we get from Steve Jobs every time we re-read our diaries filled with entries from books we have devoured on his life. While the crowds dig in their heels convinced what is right or wrong, biasing their predictions as an optimist or pessimist – Jobs was the greatest possibilist we’ve ever learned from.
Steve Jobs decided early on not to be captive to reality but to get lost in curiosity instead, with an epic sense of possibility. He did not do well in school and said he came close to letting the educators beat the curiosity out of him. “Books are the only things that kept me out of jail,” Jobs once said.
One Sunday afternoon, his mom left out an article for young Steve about how hackers and phone freakers found ways to make long distance calls for free by replicating tones that routed signals on the AT&T network. Half-way through devouring it he called his friend Steve Wozniak.
“Woz picked me up a few minutes later and we went to the library at Stanford’s Linear Accelerator Center to dig through stacks and stacks of books and to find a journal with all the frequencies. Then I found one and screamed Holy Shit.”
A hacker known as Captain Crunch discovered the sound that came with the toy whistle in the cereal box was the same 2600 hertz tone used by the phone networks’ call routing switches. It could fool the system into allowing a long-distance call to go through without charges.
A couple of years later, Wozniak sold his HP calculator and Jobs sold his VW bus to fund their little startup. Jobs walked into their first customer meeting to sell a computer barefoot, after cold calling him.
A few short years later Apple went public.
Manufacturing Luck
Today, fewer investors are set up to find homeruns than at any point in our careers over the past three decades. Our best guess is many have been intimidated out of even trying by a combination of two factors. One, Wall Street’s crowded conclusion is if their firms’ funds can’t keep up with the indexes, their customers are better off owning the entire market. There is nothing wrong with owning index funds for a portion of a nest egg, and plenty right with that approach for most investors. But here’s our uncrowded opinion on the second co-conspirator in that shift from active to passive investing – investors are not balanced. They do not have enough of their nest egg completely removed from harm’s way in Safe assets, earning risk-free interest, to combine with Sacred assets generating annual dividends. That combination produces consistent “mailbox money” as our partners affectionately call it, and allows for completely separate Speculative assets to have more time to run into more curiously good luck.
“If you look really closely most overnight successes took a really long time.” – Jobs
When you are only speculating with money that cannot be scared, you give yourself an enormous advantage over the crowds reading about predictions and reacting to them.
If you’ve ever been scared out of an investment early, give yourself some grace and know that our simple balance of Safe, Sacred & Speculative was learned the hard way by us too! It took us years to appreciate that simplicity is the ultimate sophistication. If you’ve made it this far, we will introduce you to a guy who will help make certain you never again regret anything you sold too soon.
There was a third original co-founder of Apple you have not heard of. Keep him in mind any time you are considering owning a speculative investment to maybe luck into a homerun one day. Meet Ron Wayne, pictured below in the middle of Jobs and Wozniak.
After only 12 days in business and nervous about debts the company would have to incur, Wayne was convinced the risk was too great, so he sold back his 10% of Apple for $800 to these other two speculators. That stake would be worth more than $350 billion today.
The biggest difference between Jobs and Wayne was not computer engineering skills. Jobs studied calligraphy after dropping out of college to only take classes that interested him. What made Jobs spectacularly wealthy is that it was never about the money to him. It was about creating something beautifully simple. He once said, “Dylan and Picasso were always willing to risk failure, that’s what this Apple thing is for me.”
Curiosity beats conviction again and again, and every once in a while can hack into some homeruns.