Suppose you must choose between two surgeons…
The first has a refined appearance, silver-rimmed glasses, delicate hands, and eloquent speech. If you need a person to play a surgeon in a movie, this is who you’d cast.
The second looks like a butcher. He’s overweight, with large hands, an untucked shirt, and a strong “New Yawk” accent.
Which do you pick?
Now, our rational mind knows that how somebody looks has nothing to do with their abilities.
But according to former trader and philosopher Nassim Taleb, this choice isn’t merely a coin flip. He actively prefers the counterintuitive option…
His thinking is that the handsome surgeon has ridden his advantages his whole career. If the butcher has seen similar success, he has probably earned it by being a much better surgeon.
Similarly, when trying to find a stock to invest in, what are you looking for?
Most investors are using Wall Street’s statistics and data to look for the wrong things.
They like high growth and exciting stories. But just like deciding on the best surgeon, buying the flashy stock may not always be the best choice.
We’ve spoken with thousands of individual investors at this point. We intimately know their behavior… and we’ve especially studied their mistakes.
We believe we know what they’re looking for… But as we’ll explain, those kinds of stocks don’t always translate into the biggest long-term gains.
First, investors want growth. If a company is growing top-line sales at 20%, that’s better than 10%. If it’s 30%, better still. And best of all is when sales are doubling or tripling.
Second, they want a story. They want to know the big thing that’s going to happen in the next year that’s going to send this company into the stratosphere.
And best yet… they love a visionary leader.
This desire spread through investors like a plague in the bull market of 2020 and 2021.
It wasn’t good enough for Peloton Interactive (PTON) to make good exercise bikes… It had to promise to be the entire future of fitness.
Carvana (CVNA) didn’t just need to sell used cars at a reasonable margin… It was supposed to upend the entire auto market.
And Cathie Wood doesn’t just buy promising technology stocks in her growth-focused ARK funds… She promotes a wildly different future for her investments with statements like this…
In a broad sense we have never been like this moment in history in terms of the amount of change. It’s already started. We feel the ground, as you just said, shifting underneath us. It has already started.
The New York Times describes “a mash-up of in-the-weeds business analysis and an almost prophetic certainty about the future” as “classic Cathie Wood.”
How can you not get excited about such vision?
Well, both Peloton and Carvana fell as much as 90% from their 2021 peaks. And today, the ARK Innovation Fund (ARKK) is down 62% from its 2021 high.
Everyone wants the next Elon Musk or Jeff Bezos. But everyone only knows those names because leaders like that are rare.
Don’t be fooled by the pie-in-the-sky growth story or the charismatic CEO. Don’t invest in stocks that have the excitement and drama that we all crave.
You see, looking for steady growth often leads you to companies you don’t see on the front page of the Wall Street Journal… and names you won’t hear at a cocktail party.
That’s because the best companies to invest in have mastered a secret combination: They excel at something both boring and difficult.
If you break down businesses by whether they are boring or exciting, and by whether they are easy or difficult, the best quadrant to be in is the boring, difficult sector. Take a look at this comparison…
The sexy sectors get tons of competition and are overloaded with capital. Try making money in fancy restaurants or movie production… You’ll lose your shirt.
At the same time, doing easy, boring things may work, but it’s easy for your competitors as well. So you get low margins and a constant struggle for survival.
But boring and difficult means steady, profitable business. And if you can do it without needing to build, maintain, and upgrade big factories, hospitals, or other capital-intensive investments, you’ve really got an opportunity on your hands.
And while these boring stocks don’t feel like they give you a lot of action… just give them time. Some of the greatest investments in history came from businesses that started out as just plain dull.
Here’s to our health, wealth, and a great retirement,
Dr. David Eifrig
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Source: Daily Wealth
