Earnings reports this quarter had 2 of my stocks (MSCI and SBUX) drop over 15% each in a single day. No matter how you look at it, that hurts. If you pick stocks though, it’s part of the process.

No doubt this caused all the doubters and “you should only be buying indexes” commenters to come out again and you know what? That’s totally cool, it’s part of the process. Let’s just remember that it even happens to Warren Buffett still from time to time.

But you know what? I actually love picking stocks, and probably not for the reasons you might think.

A lot of times people assume that stock pickers think they can outsmart the market, be the next Warren Buffett, or generally outperform the 90% of professionals who (allegedly) can’t do it.

I hear about this every month whenever I talk about how I’m currently trailing the index. Critics who say index-only is the only way to be successful are quick to say “this is proof you shouldn’t be picking stocks” as if they know and understand it all.

But what is missed many times is that picking stocks can be such an enjoyable challenge if you have an interest in it and the right mentality to deal with the inevitable ups and downs.

Here are some questions you can ask yourself to know the difference:

Don’t want to worry about one of your stocks dropping 15% in a day? Don’t want to stress about if you’re beating the market every single month? Just buy index funds and move on with your life.
Don’t want to deal with people saying your dumb, or bought the top, or should’ve waited, or time in the market > timing the market…just buy index funds and move on with your life.
Don’t want to spend time researching stocks, keeping up with them, doubting if your analysis is good enough, or just don’t have an interest in it at all? Just buy index funds and move on with your life.

I’ve said this many times - index funds are a great tool. They changed my life, and we still invest in the S&P 500 in other retirement accounts we have.

But they’re not the only way, and there’s a lot you can learn from picking stocks that isn’t just about picking stocks. Let me show you what I mean.

It will teach you about business

I didn’t start picking stocks until long after I was into my corporate career, but I wish I would’ve started earlier because I think it would’ve helped me be a better employee and earn more.

Why? Simply think about what you do when you analyze a stock:

You evaluate their products, their competitive moat, and their overall growth
You look at their expenses, margins, and financial health
You compare them against their competition and their own previous history

*Do you think understanding financial statements helps you understand general business more? Of course it does.*

Now think about you as an employee (even better if you work at a publicly traded company), that information can help you do an even better job. Because now you’re thinking about how your work, your project, your effort is tied back to the company’s success.

Want to stand out with your boss? “Hey I was thinking about this thing we do all the time that’s actually not needed, eliminating it could improve our margins by about 10%”

Want to have tangible proof of your contributions to the company? “Our project helped grow overall revenue by 10% and we came in under budget reducing our overall expenses by an additional 3%.”

This works because now you’re talking about how you’re valuable to the business. Not how the business can be more valuable for you.

Even if you’re just starting out in an entry level job, these same principles apply. The more you learn about businesses, how they work, and what makes them successful - the better you can be at navigating your career for better results and ultimately better pay.

The willingness to dig in and learn something new about a stock / company helps open your eyes to seeing things at your job from a different perspective.

*Something like reading and understanding parts of a 10-K can help you be that much better in how you think about your work every day.*

It may even give you a bigger sense of pride at work, depending on your situation. I know whenever I see one of my stocks out in the wild (CAT truck on a trailer, or my local McDonald’s) I get a small sense of pride knowing I have a (very small) ownership stake in that company.

It doesn’t just have to be about your job either. If you plan on starting a business or a side hustle, understanding more about what makes a company’s stock look attractive helps you understand your own business better as well.

It teaches personal accountability

I’m big on personal accountability. Mostly because I saw a dramatic positive change in my own life when I started taking it seriously. Everyone says they want it, but what they normally mean is that they want it only when it benefits them.

Your project goes well…you want the praise. Maybe even a special bonus, right? But what about if the project goes poorly or spends more money than it should’ve. Should that come out of your salary? No way…right?

This is common, we like the idea of personal accountability but not the reality. What I love about stocks is that there is no other option.

If a stock doesn’t work out, it’s ultimately on us for making the decision to buy it and hold it. Sure, we can blame the leadership team, but they don’t hear us. We can blame short sellers, but they’re imaginary villains without names. It’s on us.

The beautiful thing about this and stocks is that it teaches us that sometimes we lose, and that’s ok. Starbucks this past week was a great example. It will be the first position that I take a material loss on since I started this portfolio. After 16 months, that’s not even all that bad.

If I’m being honest with myself, it’s no one else’s fault but mine. I made the decision to buy. I made the decision to hold, and it just didn’t work out. Even if you do a perfect job of analyzing a company before you buy, you can still be wrong.

*I knew there were risks with SBUX to begin with, but thought the core business was strong enough to overcome them*

Researching and analyzing doesn’t guarantee success. Nothing guarantees success. All we’re doing are things that give us a higher probability of success than others.

But…they’re still just probabilities. The reason why this is so important is because this is how life is.

You can do everything right. You can eat right, exercise everyday, always wear sunscreen…and still get cancer at a young age. Or maybe a freak accident happens. Or maybe a once in a lifetime opportunity falls into your lap.

There’s an element of randomness to markets just like there is to life. Learning to pick stocks helps you understand that better and gain experience in how to react and make decisions whenever it happens.

It builds perseverance

Picking stocks is hard. You will have big winners that feel great. You will have losers that feel terrible. But the hardest part is to maintain conviction and confidence over a long period of time in order to see success.

We can all deal with challenges in small doses, it’s the willingness to keep going when it’s not so fun that really matters.

You see some of the crazy comments I get on my channel because I’m picking individual stocks and deciding to buy and/or sell a company. But that’s also common in real life. Everyone has an opinion on what you’re doing, and it’s rarely supportive or helpful (this is sad by the way, I hope my channel becomes the opposite of that).

Continuing to learn and adapt over time is what helps us build that confidence to persevere. That’s a mentality and skill that helps us just as much in life as it does with stocks.

Oh and don’t forget…we might actually make some money and improve our financial situation on the way.

Ok, what’s the point?

This isn’t to say that everyone should buy individual stocks. For most people, just buying index funds and consistently contributing is the best route. They have no interest in picking stocks and that’s fine.

For those of us that do though, there’s a lot of value to be had.

So don’t stress about every loss, don’t celebrate (too hard) at every win. It’s about the process and who we can become over time.

That doesn’t mean we think we’re smarter than other people, or better, or even guaranteed to succeed. Picking stocks isn’t about thinking you’re one thing or another. It’s about challenging ourselves and building character to become better at handling markets and ultimately better at handling life.

It’s the difference between approaching life thinking you know it all versus knowing you don’t know everything but can be ready for anything.

That’s probably worth more than the potential gains anyway.

Quick Thoughts

Mother’s Day is coming up in 1 week! Put it on your calendar. Don’t forget. Plan something for your mom and/or mother of your kids. (I’m doing this as much for me not to forget as I am for you)
60 minutes did a piece on Nvidia and CEO Jensen Huang, which I thought was excellent.
If you want more thoughts on markets and stocks throughout the week - consider signing up for my Discord community!

Have a wonderful week, and I’ll see you next Sunday!

Portfolio Updates for the Week

As mentioned in my video this week, I was planning to move on from Starbucks (SBUX). I thought I might wait to see a bounce up from the initial selloff, but I went ahead sold out of my position. There were just better options out there and I'm not sure how far the selloff will go.

5/3/2024 - I sold 115 shares of Starbucks (SBUX) at $73.88 / share (4 different accounts)
5/3/2024 - I bought 18 shares of Meta Platforms (META) at $449.77 / share
5/3/2024 - I bought 2 shares of Visa (V) at $269.03 / share
SBUX is no longer in my portfolio
My cost basis was $93.40 / share, so a whopping 20.9% loss (only fortunate thing is it was one of my smaller positions)
META is now 2.96% of my portfolio
My total position in V is now 122 shares at a cost basis of $244.92 / share
V is now 12.18% of my portfolio

Some notes of my thought process in case it interests you:

Regarding SBUX: Bottom line is that I took a risk when I bought Starbucks in August of last year. I rated their operational performance as just Okay. I rated their Valuation as Poor, but I felt their core business was so strong that it would make up for it. It didn't pan out. SBUX was the first decision to buy that turned into a material loss. Unfortunate but it will happen picking individual stocks.

Many people say things like "selling at the lows is how most investors suck over time, Starbucks will come back" and there is some truth to that. But every situation needs to be evaluated by itself. The question isn't "will Starbucks come back" because I'm sure it will trade at a higher number than $73 probably soon. The question is whether or not it will provide an acceptable return vs the market for my portfolio. I have very little confidence that it will now. So it's gone. The goal is not to be "right" the goal is to be successful. (I used to say that in my corporate career all the time lol)

Regarding Visa: Simply it’s Visa and looked attractive after earnings. Rinse and repeat.

Regarding META: I wasn’t really looking to add another mega-cap to the portfolio, but the numbers looked too good to pass up with the recent dip after earnings. Some things I liked:

Price / Cash Flow < 15
Projected Revenue Growth > 15%
Profit Margin > 80%
FCF Margin > 20%
Zero net debt

Plus from the their most recent earnings:

Revenue up 27% YoY
Income up 91% YoY
EPS up 114% YoY

They are crushing it. I know the market didn't like the talk about increased capex spend on AI and all that. But they are generating insane cash. Another example of a business that is growing faster than the stock price.

Also a couple things that are not all that important but cool to me:

Zuck's transition from nerdy anti-social Harvard dropout to MMA fighter living his best life all over the globe is kind of cool lol
I am interested in their Ray-Ban partnership and seeing how it progresses. Between that and Quest they are in an interesting position versus Apple's Vision Pro.

I’ll be doing a full video about META and why I added at some point, but it might be a week or so out.