Finding explosive stocks is just part of the challenge … mastering your emotions is equally important … where Luke Lango urges tech-investors to focus today
Let’s say one of our analysts recommends a stock that goes on to return 5,000%.
You wouldn’t get those returns if that stock’s volatility led you to panic-sell years before those life-changing gains accumulated.
The reality is that finding winning stocks is only part of the game. An equally critical pillar of successful investing is mastering your emotions.
What greatly impacts your returns is how you handle the natural emotions of fear and greed … how you decide to protect your wealth (possibly using a stop-loss, or using measured position-sizes, and/or locking in some gains as a stock climbs) … and importantly, what you decide to focus on (say, short-term stock-price weakness or long-term potential growth).
In essence, it boils down to how you answer one foundational question …
How will you prevent yourself from derailing your own portfolio gains?
In last Thursday’s issue of Innovation Investor, Luke Lango helped his readers tackle this emotional component of investing. He did this by reminding tech-investors where their focus should be today:
Near-term price movements don’t matter. What matters is long-term innovation.
It’s been a challenging six weeks for tech investors. Soaring interest rates have led to volatility in the sector, with many leading stocks suffering double-digits declines (though, fortunately, tech has been rebounding in recent days).
If you paid attention to the headlines, you may be considering following the herd — in this case, that means selling your tech-based growth stocks to rotate into value stocks.
But doing so could be self-defeating for your long-term wealth.
Today, let’s look inside Luke’s Innovation Investor issue to see why innovation, and not stock-prices, should be the focus for tech-investors today.
This will be critical to remember if — or rather, when — interest rates continue climbing and tech comes under additional pressure.
Let’s jump in.
***How a focus on innovation can help guide you to life-changing wealth
For newer Digest readers, Luke is our hypergrowth expert, and the analyst behind Innovation Investor. His specialty is finding market-leading tech innovators that are pioneering explosive trends.
In recent weeks, he’s been telling readers why rising interest rates won’t derail long-term tech wealth. Even though the market prices of many tech-leaders have been falling hard, Luke has urged readers to see the bigger picture.
In last Thursday’s issue, he took it one step further — highlighting some of today’s biggest tech-winners that suffered their own wipeouts years ago.
But what supported these companies over the longer-term — and rewarded investors who stayed the course — was innovation.
Luke begins by pointing to Apple. In 1983, hype around Apple’s revolutionary “Lisa” computer caused Apple’s stock to double. But when Lisa’s sales tanked, so too did Apple’s stock.
From 1983 to 1985, Apple crashed 80%.
Most of the world had thrown in the towel on Apple.
But not everyone was so short-sighted …
A select few investors — realizing the power of innovation — recognized that while the Lisa computer was a flop, the innovation inherent in the product was special … and understood that all Apple needed to do to be an enormous long-term success was channel that innovation into various other computer products.
Of course, we all know that this is exactly what happened.
Over the subsequent three decades, Apple investors have enjoyed 2,400X-returns.
Next, Luke points to Microsoft.
From January through early October of 1987, its stock price almost quadrupled. But in the wake of Black Friday, it lost more than half of its value in a matter of weeks.
Back to Luke:
Lots of folks gave up on Microsoft, because they were spooked by a 50% drop in the stock price.
Yet, over the next three decades, Microsoft changed the world with its computers, operating systems, business productivity software, and cloud computing infrastructure — and Microsoft stock has soared 1,350X from those late 1987 lows.
Then there was Amazon. Following the Dot-Com crash in 2000, Amazon’s crashed an incredible 95%.
Luke also points to Netflix. In 2011, the stock lost more than 80% when it split apart is DVD rental business from its streaming business.
Yet, Amazon is up 501X from its 2001 lows, and Netflix has soared 67X.
Back to Luke:
So … as you can see … history teaches us a remarkably simple and important lesson when it comes to investing, and that’s this:
Near-term stock price movements do not matter. Long-term innovation matters.
Long-term innovation drives long-term economic value, and long-term economic value drives stock prices higher in a multi-year window.
It’s that simple …
If the underlying innovation is robust, the company’s growth rates will remain healthy, and the stock will soar …
If the underlying innovation is absent, the company’s growth rates will fall apart, and the stock will continue to crumble.
***But how do lofty valuations factor into all of this?
Valuations matter, period.
When a company’s valuation gets too out-of-whack (on the low end or the high end), the market eventually tends to push it back toward the average. And this can absolutely impact a stock’s price.
But that ties into Luke’s point …
The shorter-term ebb and flow of a stock price, even if it’s a pronounced pullback, should not be a tech-investor’s principal focus if the long-term innovation story is intact.
To illustrate, below we look at historical price-to-earnings ratios for Apple and Amazon (we could have included the others, but chose not to for space).
As you’ll see, at times, they became horribly inflated. But that didn’t diminish the innovation-potential of the companies themselves — rather it impacted the price an investor paid for that innovation.
But in these examples, even buying at a nosebleed valuation eventually proved profitable as innovation drove market prices to new highs.
Here’s Apple’s P/E from 1991 through today. It climbed to over 380 in 2000, and hit 300 in 2003. For much of the mid-2000s, it was 40+. As I write, it sits at 33.31.
Below is Amazon’s P/E ratio.
In 2012, it soared above 3,500. From 2013 forward, it’s spent much of its time above a value of 150. As I write, it sits at 75.68.
***But let’s bring it back to the emotion-angle — what happens when the stock of an innovative tech company crashes?
You have a few options …
First, you evaluate what Luke points toward as the most important criterion for staying loyal to a tech stock — its innovation potential.
If it’s still strong, and your specific investment horizon has plenty of time, you simply hold.
But let’s now be realistic — what if you like a stock’s innovation potential, but you don’t have the stomach to hold through a massive collapse, or you don’t have a long investment-horizon, or the position is overweighted in your portfolio?
That’s when you have to use wealth-protection measures. As noted earlier, we’re talking stop-losses or you sell your position down to a size that enables peace of mind, even if the stock crashes.
There’s also no reason you can’t abide by a stop-loss with the goal of buying back in some months down the road.
I’m not suggesting you try to time the market — it’s almost a certainty you won’t time a market-bottom exactly when you look to buy back in. But that shouldn’t be your goal.
Rather, you simply initiate a new investment at a price that you believe will reward you given the company’s valuation and growth prospects relative to your specific investment timeline.
But underscoring all of this is one thing …
The presence, or absence, of a company’s innovation potential.
In the long-term, that’s what will create or destroy wealth.
Luke points out to his readers that the companies held in their Innovation Investor portfolio are leveraging the power of innovation to change the way our world operates.
Back to Luke:
So long as that remains true, we remain confident that near-term weakness in our stocks is a long-term opportunity.
We’re investing in world-changers here … We don’t care where the stock prices are today. We care about where they’ll be in five years.
We think the answer for almost all of our stocks is several hundred percent higher.
So, so do yourself a favor, and forget this near-term noise.
Stick with the people and companies changing the world. Stick with innovation. And don’t let Wall Street’s mood swings chase you out of life-changing investment opportunities — like it chased thousands of investors out of Apple back in 1983, or Netflix back in 2011.
Don’t be the investor who lets fear and panic cost them millions.
Instead, be the investor who lets patience and innovation guide them to making millions.
***A new addition to Luke’s Innovation Investor portfolio
Before we wrap up, one quick note …
Given the selloff in tech over the last six weeks, Luke has been finding multiple buying opportunities. So, to make things simpler on subscribers, he just introduced a new feature in his portfolio called “Top Picks.”
Here’s Luke to explain:
With “Top Picks,” I will be naming by single top stock pick in every investment megatrend every single month — so, one top stock pick for the Green Wave portfolio, one top stock pick for the Next-Gen Mobility portfolio, etc.
These top picks represent the cream-of-the-crop in our portfolio at that given time. In practice, these are the stocks we would buy if we could only buy one stock in each megatrend.
To learn more about Luke’s Innovation Investor and access these Top Picks, click here.
In any case, if you’re a tech investor, ask yourself where your focus is today — on short-term prices or long-term innovation-potential.
Here’s Luke with the final word:
To be sure, we don’t think the selling is over.
The next few months will be characterized by a push-and-pull dynamic between bulls and bears, as some big inflation readings in April and May will cause some near-term panics on Wall Street.
But we firmly believe that those panics — like the February and March panics — will be little more than great long-term buying opportunities …
Ignore the noise. Ignore the talking heads. Focus on what really matters — innovation … the one thing that consistently and always drives long-term value.
Remember: Innovation can be paused. It can never be stopped.
Have a good evening,