Whitney Tilson

Kase Learning

A Value Investor’s Guide to Growth Stock Investing

Alliance Meeting 2018
  • The four mistakes value investors make:
    • Investing in low-quality companies that look cheap.
    • Failing to buy high-quality companies because they didn’t look cheap.
    • Buying high-quality businesses and selling them too early.
    • Failing to understand and appreciate powerful technologies and trends.
  • How a company performs over time is more important than current valuation – Tilson had this backward at the beginning of his career.
  • The four mistakes that growth investors make:
    • Overestimating future growth and projecting past growth into the future.
    • Paying too high a price for a stock.
    • Falling in love with great companies and failing to see when they should.
    • Getting suckered into “story stocks.”
  • Big Lesson #1: Stocks tend to follow earnings.
    • High valuations haven’t mattered for certain growth stocks.
    • You want to find companies with accelerating revenue growth.
    • Beware of value traps – companies whose earnings decline and decline. It is almost impossible to make money on a stock, however cheap, that just goes down and down. Ex. Bed, Bath, and Beyond getting killed by Amazon.
  • Big Lesson #2: Look for inflection points.
    • Combine value and growth approaches and buy a great growth stock at a value price – that’s the dream.
    • Don’t wait for a stock market correction to do this – 90% of the time you should ignore the market and zero in on specific companies.
    • How to identify inflection points:
      • Happens when sentiment is bad but you believe good things are going to happen.
      • This means you have a variant perception – an insight or opinion that differs from the mainstream.
      • To have a correct variant perception, you have to have some sort of unique data, thought, or analysis.
      • You’re most likely to find inflection points in a niche where you have deep knowledge and relationships.
  • Big Lesson #3: Let your winners run – as long as the story remains intact.
    • Three most dangerous words in investing: “I missed it.”
    • Even if the stock has gone up considerably, you haven’t missed it if the story is still intact.
    • You must sell if the story falls apart.
  • Stock recommendation #1: Alphabet (Google)
    • Greatest business on earth.
    • The growth rate is still accelerating despite its size.
  • Stock recommendation #2: Facebook
    • Second-greatest business on earth.
    • Only one third the size of Google, so there’s still a lot of room to grow.
    • Margins are nearly double Google’s.
    • We’re at an inflection point since Facebook has seen drawdowns – buy Facebook.
  • Stock recommendation #3: Howard Hughes
    • Real estate company that owns five major properties.
    • Been flat for 4.5 years – we’re now at an earnings inflection point.
  • Bitcoin is a scam – you will get blown up.
  • Pot stocks are in a major bubble that is due for an implosion.
  • Visit kaselearning.com/stansberry.html for more info.