But at the same time, I want to throw in this tweet that Michael Batnick threw out in 2017.

This is a reference to John Templeton's famous words:

The four most dangerous words in investing are: "It’s different this time.”

Batnick warns that things are never really the same either. Things do change over time. And that might be the case now. We might actually be looking at something new with AI.

Please, be open-minded. I know you already have your opinion after this introduction. But set it aside for now and look at it again after the article.

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AI: Is This Time Different?

Let me start with the Gartner hype cycle, which many of you probably know. This is how it looks.

Innovation triggers the peak of inflated expectations. Then reality hits, and we tumble into the trough of disillusionment. Eventually, we climb the slope of enlightenment and reach the plateau of productivity. It's a pattern we've seen over and over.

Look at the internet. The infrastructure got built out in the late '90s and early 2000s. Then what? A massive crash. We had to wait until after the 2008 financial crisis, around 2009, 2010, before the killer applications really arrived. That's when SaaS took off. Netflix switched to streaming in 2011. Mobile broadband became ubiquitous. It took a second wave of innovation to unlock the productivity gains we'd been promised a decade earlier.

Here's what's different this time: we're already seeing some killer applications and they are already very profitable.

Take Palantir (PLTR). This is no longer a speculative company. (Mind you, I'm not talking about the stock). It has essentially rebuilt its entire business on AI, and it's clearly working. Palantir's growth is accelerating, not slowing down. For a company that's been around for 22 years, that's very remarkable. Companies that old don't usually start growing faster. But AI changed everything for them.

Then there's a company like Lovable, the Swedish startup that wants to turn everyone into a vibe-coding programmer. It was only founded in 2023, but it is worth billions already. Incredible speed and that's something you'll see more and more in the future.

Another example is AppLovin (APP). The stock got crushed just a few years ago, down 92%. Had you invested on January 2, 2023, you'd be up 5,640%, though. WhY? AI.

Applovin completely rebuilt its business around its AXON AI engine and sold off its legacy gaming apps. Now it's processing 2 million ad auctions per second with AI that learns in real-time.

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Revenue exploded. In the last twelve months, $5.74 billion in revenue came in. But because of AI, it's also extremely profitable. Applovin has EBITDA margins of 81%. Applovin now has a market cap of $200 billion. On January 1, 2023, that was just $3.9 billion.

Again, the speed at which it reached that size is unprecedented. Prepare to see this pattern return more often in the future.

If we continue to see more companies like this, businesses that are fundamentally built on AI or have successfully transformed themselves through AI, then we might never reach that traditional trough of disillusionment. But that's a big "if."

The timeline matters here. If these killer applications take four or five years to really materialize, then yes, we'll look back on this period as a bubble. The market won't wait that long. But if they keep coming at the pace we're seeing now, we might skip right past the disillusionment phase.

The Infrastructure Spending Isn't Stopping

There's another sign that AI spending is not over yet. Look at how desperate companies are for GPU chips. The biggest corporations in the world are literally begging Nvidia for more capacity. When you see that kind of demand, you know the spending isn't going to stop in 12 or 18 months. It's further out than that.

And this brings me to a crucial point about return on investment. Everyone keeps asking: "When will investors demand to see returns from all this AI spending?"

I think they're missing something fundamental. The return on investment is already there, just not in the way people expect.

Just look at this Shopify chart.

(If you want to make such insightful charts as well, next to conference calls, the transcripts. I look at presentations of shareholder meetings, conferences, analyst expectations for free cash flow, revenue, free cash flow, EPS and much more. It has Morningstar's high-quality reports on more than 1700 companies. If you use this link, you have a 15% discount (just $20.4 per month!) for the Plus plan.)

In 2023, Shopify adopted an AI-first approach. That means that if you always have to try to solve a problem with AI first and only if that doesn't work, you can hire a human being. As you see, revenue per employee shot up in 2024.

The executives running the biggest tech companies today have all read Clayton Christensen's "The Innovator's Dilemma."

They understand the core lesson: if you don't creatively destroy your own business, someone else will do that for you.

This is completely different from 30 years ago. Back then, if you were a top-10 company by market cap, you were basically complacent by definition. You had your moat, and you defended it and had some sustaining innovations. This is how it works:

The reasons why you only had sustaining innovation and no disruptive innovation were mostly these:

• The new technology is initially seen as crappy compared to the older technology

• The megacap company earns a ton of money with the old technology and switching would mean giving up tons of profits.

• Switching costs can be enormous.

Today's tech leaders know they can't think that way. Satya Nadella at Microsoft understands that if Microsoft is left behind in AI, the company will die eventually, as it almost did before he took over as the CEO. It doesn't matter how profitable they are right now, Microsoft, Google, Meta, Amazon and others will spend like there's no end to not be disrupted by new players. Microsoft even went as far as almost taking OpenAI in-house.

That's why older investors who say "Eventually Microsoft shareholders will demand returns from all this chip spending" are wrong. Nadella knows that not spending on AI infrastructure is a guaranteed path to irrelevance. The choice isn't between spending and profits; it's between slowly dying or survival.

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Apple's Dangerous Position

This is exactly why I'm worried about Apple (AAPL). I don't see that same willingness to invest heavily in the far-out future. They're still stuck in incremental improvement mode. You know the formula for the new iPhone: slightly better camera, slightly faster processor and some fancy colors. I'm looking at you, Cosmic Orange. That's the playbook of an incumbent that's about to be disrupted.

Now, I'm not predicting Apple's immediate collapse. Disruption is a gradual process that unfolds over years. But if Apple doesn't jump on the AI train soon, the train will leave the station without them. And once that happens, it's incredibly hard to catch up.

The companies with deep pockets, Microsoft, Google, Amazon, and Meta, just to name a few of the biggest, can invest like crazy and still remain extremely profitable. Apple has deeper pockets than almost anyone, but they seem reluctant to place big bets on transformational technology. That's dangerous.

Market Reality Check

None of this means we're in a risk-free environment. Stocks aren't cheap right now. We've had a crazy run since April, and honestly, I think we're due for a correction. That would actually be healthy for the market.

I want to see some air let out of this balloon. Not because I'm bearish on AI – quite the opposite. A pullback would give us time to see more killer applications emerge. Right now, there are still very few companies whose entire business model is built on AI. We need more of them, and we need them fast.

If those applications don't materialize quickly enough, then yes, we could see a big deflation and tumble into that trough of disillusionment for a few years. The market won't wait forever for the productivity gains to show up.

The Speed of Progress

Here's what gives me hope: look at how fast the large language models have improved. The general launch of ChatGPT was in November 2022, less than three years ago. The progress since then has been incredible.

However, and this is important, we haven't yet seen quantum jumps in productivity. The tools are better, the capabilities are expanding, but most businesses are still figuring out how to actually use this stuff effectively. That productivity boom has to come, and it has to come soon. There are signs, Shopify, Palantir and Applovin, as I mentioned, but there needs to be a broader movement to avoid the trough of disillusionment.

The models need to become much more efficient and applicable to real-world business problems. Right now, we're still in that phase where AI is impressive in demos but harder to implement in practice. That gap needs to close.

What This Means for Investors

So where does this leave us as investors?

First, I think we avoid that classic bubble pattern if (and only if) the killer applications keep coming at a rapid pace. Companies like Palantir, Lovable and Applovin need to become more common, not the exception.

Second, the infrastructure spending is going to continue much longer than most people expect. The returns aren't going to show up in traditional quarterly earnings reports. They're showing up in competitive positioning and long-term survival odds.

Third, watch out for companies that aren't adapting. The incumbents who think they can sit this one out are setting themselves up for disruption. Apple is the obvious example, but they won't be the only one.

Conclusion

Innovation is moving faster than ever before. The traditional hype cycle might not apply this time because the gap between infrastructure and applications is shrinking.

A correction would be healthy and give more time for those applications to prove themselves. The question isn't whether AI will be transformative; it already is. The question is whether it's happening fast enough to justify the current valuations.

I'm cautiously optimistic. The pieces are falling into place faster than in previous technology cycles. The companies with huge capital resources are making the right bets. And most importantly, we're already seeing real businesses built on AI foundations, not just demos and prototypes.

The future is inherently unknowable, but if I had to bet, I'd say this time really might be different. Just don't let that optimism blind you to the risks along the way.

In the meantime, keep growing!

PS: If you want my latest stock picks, full portfolio access, and entry to a subscriber-only platform, upgrade here.

PPS: If you liked this article, it would be great if you shared it on your social media.

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You probably know my name is Kris. This is me.

But I realized that it's a long time ago I talked about my background story.

Newer Multis may not know me and Multis who have been here for a while may have forgotten several elements. Or maybe I didn't even tell the full story. That's why it feels like a good time to introduce myself here again.

I hold a Master’s degree in Dutch and English, as well as a postgraduate Master in Media and Communication from the University of Ghent, Belgium.

My first job was as a reporter for the local TV station (AVS, if you are from Belgium). Then I worked 3.5 years in the Belgian Federal Parliament.

In between two elections, I became a teacher because the Member of Parliament I worked for moved from the Federal to the Regional Parliament and that meant I had to bridge 2 months. I was very bad at being unemployed, even if I knew it was for a limited period, and I planned to be a teacher for 6 weeks before I started working in the Flemish Parliament.

While I liked my job in the Parliament, I loved teaching. That's why I chose to stay a teacher after those six weeks. I mainly had 16- to 18-year-old teenagers. There was not a single day in 16 years that I didn't enjoy teaching. So, you may wonder why I'm not a teacher anymore.

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In 2013, my wife got pregnant. I got some sort of primal feeling of having to gather for our unborn child. But how?

My first idea was investing in single malt whisky. You have to know that I gave whisky tastings now and then in those days, so I knew what whisky could be good to invest in. My wife didn't like it. She thought I was going to want to taste those whiskies. And yeah, that was my plan: buy three bottles, one for myself, two to invest. My wife's a lawyer and tax specialist. Her answer: "Oh, so you start with -33%." Ouch. I knew she was right.

After studying the investing side of art for months (which my wife also didn't like), I stumbled upon stocks.

I knew nothing about investing and I made every single mistake you can think of: value traps, trading too much, leverage, options, etc. All the things a beginner shouldn't do. Needless to say, it was not a great success. I was fortunate my wife said: "It's OK, but I don't want to know anything about it." She still says that today, by the way. 😁

Then it hit me 💡: with studying, you could become a better investor. And learning and reading had been two of my main hobbies since I was a child! Hooray.

I started with The Intelligent Investor because that's what everybody said I should read. I found it very boring, to be honest.

But fortunately, I didn't stop there. In 3 years, I devoured 82 books, listened to about 750 podcast episodes and read about 15,000 articles on investing. That's about 15 articles a day on average.

Many of those articles were on Seeking Alpha. I started sharing my thoughts about the articles I read in the comment section of articles. Until another Seeking Alpha reader replied to my comment: "Hey, I follow you because your comments are often more interesting than the article you comment on and almost as long. Why don't you start writing?" I had considered that, but I thought, "Who the hell is waiting for a teacher from Belgium to write about stocks?" That comment was the final push I needed.

In February 2016, my first article was published on Seeking Alpha. It was about WhiteWave, a company bought out by Danone a few months later.

As a teacher, my main enjoyment came from breaking down complicated stuff, showing the different parts to the students, and putting it back together. Not literally, as I taught Dutch and English. In my articles, I often do the same thing and I still enjoy that a lot.

I kept evolving. I gradually moved from deep value investing to GARP (growth at a reasonable price).

Then, in February 2017, I heard a podcast episode with Tobi Lütke, Shopify's founder and CEO. It made me so enthusiastic, I immediately bought 10 shares of the stock. That was just $558 at the time. Those 10 shares have become 100 shares through a 10-for-1 stock split. They would be worth $14,600, had I not sold a third in 2019.

But what really puzzled me was WHY I had bought those shares. I saw myself as a rational investor, but I had bought those shares impulsively after that interview. The stock was sooooo overvalued.

That's how I started studying multibaggers. Because I realized that if Tobi could make me enthusiastic, he could also do that with the other Shopify (SHOP) executives, its employees, investors and customers. You can't quantify that, but a fantastic CEO is extremely important in investing.

And so, I started Potential Multibaggers on May 2, 2017, with Shopify, which was already at (a split-adjusted) $7.78 then, as the first pick. To my amazement, about twenty thousand investors followed me already. I started a Twitter account and I got more and more followers there as well. I have about 34K followers now on Seeking Alpha and 113K on X, as Twitter is called now.

Since the launch of the paid version of Potential Multibaggers, with exclusive research, my portfolio, Best Buys Now and much, much more, I've been researching stocks and writing about them as a full-time job.

In January 2022, I launched a second service, Best Anchor Stocks, with Leandro, who leads it independently and excellently.

Over the years, I have picked many losers for Potential Multibaggers like Peloton, Skillz, Teladoc, Novocure and Fiverr.

But I also picked Cloudflare at $39, CrowdStrike at $98, The Trade Desk at $19.5, Sea Limited at $54, Mercado Libre at $1,202, Duolingo at $93, Nu Holdings at $4 and Hims & Hers at $22, for example.

My Best Buys Now (5 stocks selected every month on or around the 15th since 2022) outperform the S&P 500 by 30% per pick over a three-year period.

After 12 years in investing, I still enjoy it every day. I could turn my passion into a business. My biggest joy is when I get messages from Multis, who write things like: "Thank you, Kris. Because of you, I can pay for my daughter's university." or "I'm so happy you taught me to buy more when the market dropped in 2022. It's the first time I could do that, thanks to your support."

What also brings me great joy is that I know many Multis read the Overview Of The Week every week and have a ritual for it. There's a Multi who can't wait until his wife leaves the house to work on Monday morning (he works from home on Mondays) to start reading the Overview Of The Week in a quiet environment, with a fresh cup of coffee. He was the inspiration for this image I made.

I know another Multi who reads the Overview Of The Week every week on Sunday evening, just after his wife goes to bed.

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A female Multi always copies the OOTW to her e-reader, then goes to bed and reads it there before falling asleep.

Multis are reading the OOTW on the train to work, or reading it when they arrive at the office before starting work (don't tell their boss!), and a Multi who uses text-to-speech software to listen to it on his morning cycling commute.

All these stories make me intensely happy, dear Multi. So, if you want to share your way of consuming the Overview Of The Week (or other content), feel free to share in the comments.

Outside of work? I feel blessed to have a fantastic family. My wife, Ruth, and our daughter, Romy, are the North Stars in my life. Romy's 11 now.

We have two cats: a Ragdoll named Quibus (a dialect word meaning "silly in a loving way") and a Maine Coon named Cooky.

I speak 5 languages. In declining order, they are: Dutch, English, French, German and Italian.

I enjoy reading (you already knew that), cycling (alone or with friends, mostly on my racebike, but I also have an MTB), playing board games (Dominion, Qwirkle, 7 Wonders, Keltis, Carcassonne, Blokus...) and music is important in my life, from classical music to metal and a lot in between. I used to play the guitar and sing, but I have not really done that anymore in the last decade or so.

In the past, I used to be a goalkeeper in soccer/football, and I sometimes watch important games of Club Bruges and the Belgian National Team (the Red Devils) or cycling races. For the rest, I prefer reading over TV.

And who are you? Let me know in the comment section!

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In the meantime, keep reading!

It's a special day, even if it may not feel like that to you.

Warren Buffett turns 95 today!

That's why I compiled 95 Lessons from the greatest investor ever, starting from his quotes. I explain them very shortly.

If you are a starting investor or an experienced on, there's wisdom for all of you. You will know some of the quotes but I also tried to look at many less-known quotes and avoided the obvious ones a bit.

1/95
"The most important investment you can make is in yourself. Nobody can take away what you've got in your head, and everybody has potential they haven't used yet."

Knowledge will bring you success and nobody can tax it.

2/95
"Time is the friend of the wonderful business, the enemy of the mediocre."

Great companies with strong moats compound wealth exponentially over decades, while weak businesses deteriorate, even if they are "undervalued."

3/95
"I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business. I read and think. So I do more reading and thinking, and make less impulse decisions than most people in business."

In these days of distraction (will you read this whole article?), reading and thinking is even more of a competitive advantage than it has ever been.

4/95
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

From his 1989 letter to Berkshire Hathaway (BRK.A) (BRK.B) shareholders. This quote emphasized the shift from pure value investing to quality investing. Charlie Munger was the "architect" behind this change.

5/95
"Our favorite holding period is forever."

One of my favorites. The best investments are those you never need to sell. When you own pieces of exceptional businesses, you can just let time do its magic.

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6/95
"Risk comes from not knowing what you're doing."

The biggest danger isn't market volatility, it's investing in things you don't understand.

Deep knowledge reduces risk more than any diversification strategy ever could.

7/95
"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful."

His famous contrarian investing principle emphasizes that the best buying opportunities come when everyone else is panicking. Contrarian thinking separates great investors from the crowd.

8/95
"You only have to do a very few things right in your life so long as you don't do too many things wrong."

Success (in investing and life) doesn't require being right constantly. Just avoid major mistakes and let winners compound.

9/95
"The more you learn, the more you earn."

Continuous learning provides returns that compound throughout your life. I’m not 100% sure these are Buffett’s words but they could have been.

10/95
"Invest in businesses you can understand. If you can't explain how a company makes money to a 10-year-old, you probably shouldn't own it."

Stay within your circle of competence but expand it gradually.

11/95
"You only get one mind and one body. And it's got to last a lifetime. It's what you do right now, today, that determines how your mind and body will operate ten, twenty, and thirty years from now."

Compounding works with money, knowledge, but also for treating yourself well.

12/95
"You should invest in a business that even a fool can run, because someday a fool will."

The business model should be so strong that even a bad manager can't derail it completely.

13/95
"The most important quality for an investor is temperament, not intellect."

You don't need to be brilliant to invest successfully. You need discipline, patience, and the ability to think independently when others panic or celebrate.

14/95
"Buy businesses, not stocks."

When you buy shares, you're purchasing a piece of a real company with employees, customers, and cash flows. Think like an owner, not a trader watching price movements.

15/95
"There comes a time when you ought to start doing what you want. Take a job that you love. You will jump out of bed in the morning. I think you are out of your mind if you keep taking jobs that you don't like because you think it will look good on your resume."

Buffett says he 'tapdances to work' every day. I have the same feeling with Potential Multibaggers.

16/95
"Someone's sitting in the shade today because someone planted a tree a long time ago."

Buffett's metaphor for the importance of long-term thinking and patience in investing.

17/95
"If you aren't thinking about owning a stock for 10 years, don't even think about owning it for 10 minutes."

This should always be the mindset when you invest. If it doesn't work out, sure, you can sell. But don't start with that in mind.

18/95
"Lethargy bordering on sloth remains the cornerstone of our investment style."

From his 1990 annual letter, explaining why inactivity can be intelligent behavior in investing. Also:

19/95
"Inactivity strikes us as intelligent behavior."

Sometimes the best investment decision is making no decision at all.

20/95
"Isn't that a little like saving up sex for your old age?"

Buffett's colorful way of saying don't defer happiness and meaningful work for some imagined future benefit. Don’t exaggerate.

21/95
"If you start fooling your shareholders, you will soon believe your own baloney and be fooling yourself as well."

From his 2024 letter, on the importance of honesty in business leadership. It also shows why so many investors are fooled by convincing CEOs. They believe their own lies.

22/95
"The cardinal sin is delaying the correction of mistakes or what Charlie (Munger) called 'thumb-sucking.'

Problems cannot be wished away. They require action, however uncomfortable that may be.

23/95
"Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."

Sometimes, when things can't be mended, radical changes are necessary.

24/95
"During the 2019-23 period, I have used the words 'mistake' or 'error' 16 times in my letters to you. Many other huge companies have never used either word over that span."

Admitting mistakes to yourself is the first step to learning. Then share what you have learned with the world.

25/95
"Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway."

This is Buffett's way of criticizing expensive financial advice that's often not valuable.

26/95
"The difference between successful people and really successful people is that really successful people say no to almost everything."

Focus and selectivity create success.

27/95
"Often, nothing looks compelling; very infrequently we find ourselves knee-deep in opportunities."

The reality of finding good investment opportunities is sporadic but many investors feel money burning into their pockets.

28/95
"Paper money can see its value evaporate if fiscal folly prevails. Businesses, however, will usually find a way to cope with monetary instability as long as their goods or services are desired."

Buffett on why you should invest.

29/95
"If a moody fellow with a farm bordering my property yelled out a price every day to me... how in the world could I be other than benefited by his erratic behavior? If his daily shout-out was ridiculously low, and I had some spare cash, I would buy his farm. If the number he yelled was absurdly high, I could either sell to him or just go on farming."

His 2013 analogy about market volatility.

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30/95
"There have been three times since we acquired Berkshire that Berkshire has gone down 50% in a fairly short period of time – three different times."

Even the stocks of the very best companies drop by 50%+. If you can't stand that, you should probably not invest in stocks.

31/95
"I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over."

Focus on what's achievable rather than what's impressive.

32/95
"Only when the tide goes out do you discover who's been swimming naked."

When the market drops, that's when you see if businesses are really strong or just surfing the market waves. We saw that in 2022.

33/95
"Honesty is a very expensive gift. Don't expect it from cheap people."

Character and integrity have real value. People who only value money can't be trusted.

34/95
"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."

Your reputation is your most valuable asset. Treat it like that.

35/95
"Chains of habit are too light to be felt until they are too heavy to be broken."

What a quote! Build good habits early before you can't break your bad habits.

36/95
"Tell me who your heroes are and I'll tell you who you'll turn out to be."

Choose your role models carefully. They shape who you become. Buffett himself is, of course, a great role model.

37/95
"Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don't have the first, the other two will kill you."

Integrity is the most important thing in business.

38/95
"The only way to get love is to be lovable. It's very irritating if you have a lot of money. You'd like to think you could write a check: 'I'll buy a million dollars' worth of love.' But it doesn't work that way. The more you give love away, the more you get."

The quote speaks for itself. Money won't buy you love.

39/95
"We enjoy the process far more than the proceeds."

Find joy in the work itself, not just the rewards.

40/95
"Of the billionaires I have known, money just brings out the basic traits in them."

Wealth magnifies your character; it doesn't create it.

41/95
"I always knew I was going to be rich. I don't think I ever doubted it for a minute."

Conviction and belief in yourself are powerful forces. Believe in what you do and have a long-term goal.

42/95
"Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard."

Focus on the process, not just the results.

43/95
"No matter how great the talent or efforts, some things just take time. You can't produce a baby in one month by getting nine women pregnant."

One of his funniest quotes. But the message is also very valuable: some achievements simply require time.

44/95
"Predicting rain doesn't count. Building arks does."

Action matters more than prediction or analysis. Thinking is only valuable if action follows.

45/95
"The most important thing to do if you find yourself in a hole is to stop digging."

When you realize you're wrong, stop making it worse. Admit your mistake and move on.

46/95
"Never ask a barber if you need a haircut."

Be cautious of advice from people who benefit from the advice they give.

47/95
"The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective."

Complicated models don't mean much. Simplicity often outperforms complexity.

48/95
"If you cannot control your emotions, you cannot control your money."

Emotional discipline is essential for success in all areas of life.

49/95
"It's good to learn from your mistakes. It's better to learn from other people's mistakes."

Wisdom comes from studying both success and failure. Compounding wisdom about failures goes faster and better if you look at your own mistakes AND those of others.

50/95
"There's a whole bunch of things I don't know a thing about. I just stay away from those. I stay within what I call my circle of competence."

You can only make good decisions about things you know about. That doesn't mean you shouldn't try to keep learning to expand your circle of competence, of course.

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51/95
"When you combine ignorance and leverage, you get some pretty interesting results."

Knowledge is essential before taking big risks. Don't follow 'successful' traders with YTD results only and never use leverage.

52/95
"When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact."

Put otherwise: you can't make a diamond from a rock.

53/95
"An investor should act as though he had a lifetime decision card with just twenty punches on it."

You should be very selective with your choices in investing.

54/95
"Beware the investment activity that produces applause; the great moves are usually greeted by yawns."

The best decisions often look boring to others or sometimes plainly dumb.

55/95
"The stock market is designed to transfer money from the active to the patient."

Patience is rewarded over constant activity.

56/95
"Uncertainty actually is the friend of the buyer of long-term values."

Investors hate uncertainty but it creates excellent opportunities for those who can see through it.

57/95
"Pick the kind of person to work for you that you want to marry your son or daughter. You won't go wrong."

Character matters most in choosing partners or employees.

58/95
"If you get to my age in life and nobody thinks well of you, I don't care how big your bank account is, your life is a disaster."

Relationships matter more than wealth.

59/95
"If past history was all there was to the game, the richest people would be librarians."

Classic Buffett quote on why investing is about the future, not the past.

60/95
"I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years."

Long-term investing at its best.

61/95
"I made my first investment at age eleven. I was wasting my life up until then."

Another classic Buffett quip. But the message is clear: start with investing as early as possible. We've been investing for nine years now for our daughter (she's 11 now).

62/95
"If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety."

Knowledge is also a margin of safety.

63/95
"We believe that according the name 'investors' to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a 'romantic.'"

Don't confuse trading for investing.

64/95
"I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out."

About waiting for obvious opportunities.

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65/95
"In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497."

There's always a reason to be cautious about investing, but it's often the best use of your money. By the way, the Dow Jones is now at 45.544,88.

66/95
"The reaction of weak management to weak operations is often weak accounting."

About management quality and accounting.

67/95
"Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised."

Some attribute this to value investing but in growth investing, the same goes.

68/95
"I don't read economic forecasts. I don't read the funny papers."

99% of what you read is noise. Ignore predictions.

69/95
"Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."

Don't buy cheap junk; buy quality at a low price.

70/95
"I am a better investor because I am a businessman, and a better businessman because I am an investor."

Both are intertwined because, as a long-term holder, you think like a business owner, not a trader.

71/95
"Charlie and I decided long ago that in an investment lifetime, it's too hard to make hundreds of smart decisions."

Another quote on focus and selectivity. Buffett called Munger jokingly 'the abominable no-man.'

72/95
"I bought a company in the mid-'90s called Dexter Shoe and paid $400 million for it. And it went to zero. And I gave about $400 million worth of Berkshire stock, which is probably now worth $400 billion. But I've made lots of dumb decisions. That's part of the game."

Everyone makes mistakes, even the GOAT. Accept it as an inherent part of investing.

73/95
"Turnarounds seldom turn."

Buffett warns against chasing companies in trouble expecting a rebound.

74/95
"We eat our own cooking."

Buffett wants skin in the game. I also look for that with companies I own.

75/95
"We will only do with your money what we would do with our own."

This is the consequence of 74.

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76/95
"We will always tell you how many strokes we have taken on each hole and never play around with the scorecard."

Radical transparency, even if it's tough.

77/95
"We like to make hay while the sun sets, knowing that it will surely rise again."

Patience and continuing to invest when others don't want to.

78/95
"Our trust is in people rather than process. A ‘hire well, manage little’ code suits both them and me."

Great people, not great processes, buy great companies.

79/95
"I’ve never believed in risking what my family and friends have and need in order to pursue what they don’t have and don’t need."

If you have enough money, concentrate on preservation rather than on growing it even more.

80/95
"Approval… is not the goal of investing."

Often, when stocks are the most attractive, you hear scorning comments about investing in them.

81/95
"It’s better to have a partial interest in the Hope Diamond than to own all of a rhinestone."

Own quality, not junk.

82/95
"Short-term price changes are meaningless for us except to the extent they offer us an opportunity to increase our ownership at an attractive price."

Many only look at price. That's not investing.

83/95
"Some truths can only be fully learned through experience."

You can read about losing money in an investment all you want, you will only know what it means if you experience it.

84/95
"A public-opinion poll is no substitute for thought."

Think independently. Always.

85/93
"A pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons."

Investors have to learn the same lessons over and over again.

86/93
"Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future."

Be very careful with forecasters. Or better: ignore them altogether.

87/95
"A horse that can count to ten is a remarkable horse, not a remarkable mathematician."

You should always look at the context.

88/95
"If you want to guarantee yourself a lifetime of misery, compare yourself to other people."

Have your 'inner scorecard' as Charlie Munger called it.

89/95
"We try to buy businesses with the same attitude that most people buy houses: they think of them not as stocks but as properties."

Stocks represent companies, not just charts.

90/95
"It’s easier to stay out of trouble than get out of trouble."

Think before you act.

91/95
"What counts for most people is not what they know, but how realistically they define what they don’t know."

Know very well what your circle of competence is.

92/95
"You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ."

Again the same idea. Simplicity beats complexity.

93/95
"We have no idea what the stock market will do tomorrow or next week or next year. We never have."

If the GOAT doesn't know, nobody does. Ignore all the X commenters, the self-appointed market timing 'specialists' and pundits.

94/95
"If you can’t communicate, it’s like winking at a girl in the dark: nothing happens."

Communication is still underrated in business. I always listen to earnings calls and podcasts with CEOs of companies I am interested in.

95/95
"Wall Street makes its money on activity. You make your money on inactivity."

This is what I also apply at Potential Multibaggers. Not too much activity, just finding the best companies that have multibagger potential.

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I hope you have learned as much from reading this as I did from compiling this wisdom.

In the meantime, keep learning!

In this article

These are some of the points we will touch on in this article.

• For me, volatility is not risk and often volatility is necessary to have big gainers.

• What is risk exactly? We look at the definition and apply it to the concept.

• How you should react to volatility.

• Chris Mayer identified 365 stocks that went up 100 times and more and all (all!) of them had drops of more than 50%. We look at a few examples.

• All future stock market crashes look like threats, but all past crashes look like opportunities. Think ahead!

For some of you, this article might be familiar, as it is an adaptation of an article I published two years ago on Potential Multibagger . Since then, it’s in the Getting Started section there, as I think it’s fundamental for my approach and that’s why I wanted it to share it with you here too.

Introduction

High volatility is completely inherent to high-growth stocks. Huge spikes and big drops are a part of the journey if you look at stocks that can multiply a few times over.

Volatility does not equal risk, though, no matter how hard pundits try to convince you of this. In this article, I will explain how I see risk and how volatility is often necessary to have big winners.

What is risk?

Wikipedia defines risk like this:

In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environment), often focusing on negative, undesirable consequences. (...)

The understanding of risk, the methods of assessment and management, the descriptions of risk and even the definitions of risk differ in different practice areas (business, economics, environment, finance, information technology, health, insurance, safety, security etc).

As you can see, the term itself is simple. It's the possibility of something bad happening. If you look at the second paragraph, though, it's getting more complicated again and several definitions of risk in several contexts exist.

I use the simple, centuries-old definition of risk. For me, risk means how likely it is that you will lose your money in your investment over an extended period of time. You can discuss what is long-term, of course. But I’m a follower of Buffett here: “If you don't feel comfortable owning a stock for 10 years, you shouldn't own it for 10 minutes.” You also know that other famous quote: “Our favorite holding period is forever.”

Now, in reality, about 30% of Buffett’s holdings have been in his portfolio for 10 years. That’s because things can change fast in business: new competitors, bad money allocation, broken promises and so on.

So, let’s agree that the long term is 10 years or more. That’s the investment horizon I strive to have, even though there will be stocks I sell earlier.

Let’s get back to risk. There is a consequence to my old-fashioned definition to risk. It means that for me, risk is NOT quantifiable. Quantifiability is why many market pundits choose to equal volatility and risks but I see this as the proverbial man with the hammer who sees nails everywhere. You can perfectly measure volatility, with beta, for example, but it doesn’t tell you much about risk.

Volatility and how to react

As a long-term investor, you can develop a competitive advantage over almost all other investors. Now, this has become very clear again. The edge you have is simple but very hard: learn to sit on your hands through drops. Or better: add more to hated stocks if the company keeps performing, your conviction is high and your position is not too big already.

My first Potential Multibaggers pick was Shopify in May 2017 at a split-adjusted $7.76. In each and every year since then, Shopify's stock was down 30% or more for a while. As you know, the recent crash dwarfed all previous drops. The stock is still down 71% from its previous high.

But at the same time, it’s still more than a sixbagger too.

Of course, with a hindsight bias, you could say it would have been better to trim or sell. But usually, if you are a long-term investor, it’s better not to do that. When will you sell? The stock can go up another 200% or more. When will you buy back? The stock can drop another 50%. You can never tell. Of course, looking back it’s always easy. I have heard many seasoned investors saying: “If I only had held Netflix/Amazon/Tesla/Apple/Walmart or … (fill in more stocks yourself) and I would already have retired by now.” That 2x or 3x seemed a great victory at the time, but not years later.

I learned that lesson to a certain as well, albeit not to the same extent, with Square (now Block). I bought it at $15 and sold it at $24. Only much later did I buy it back at a much higher price.

Volatility works both ways, up and down, although a lot of people only look at volatility when a stock goes down. But you really need volatility to have outsized gainers and therefore I see volatility just as something inherent to growth investing, not something negative.

To be a great long-term investor, you should train yourself to be unmoved by stock price movements. After all, a volatile stock price doesn't mean a volatile business.

Being unmoved by stock price movements sounds easier than it is. I think most of you need no convincing there anymore after 2022. When the stock price drops, you hear all kinds of negative arguments about why that is. Some might even be true but don't let it distract you from your long-term goal.

If you selected quality, and that's what I always strive for, stocks that fall represent opportunities, not threats. Say this out loud with me:

All future stock market crashes look like threats, but all past crashes look like opportunities. Think ahead!

I have given this the layout of a quote, not because it is one (I made it myself) but because it stands out like this, and I want you to really let that lesson sink in. So say it out loud again. If your partner looks bewildered that you talk aloud to yourself, just say that you are training to make money. He or she will understand and encourage you to do it again and louder. :-)

100 baggers

If you are a true long-term investor, you should be happy if the stock of a great company drops. I know that sounds counterintuitive for most investors and some will even get angry. I'm pretty sure that many of you feel stressed when their stock drops by double digits.

Of course, it never feels good to see your portfolio's worth shrink and I am human as well, of course. You think about your hard-earned money and see it melting before your eyes. Focus on what you can add to your portfolio, not on what's already in. If you can't add for some reason, you should realize that your chances of winning haven't changed because of a drop. Your chances only go away at the moment that you sell everything.

In his excellent book 100 Baggers, Christopher Mayer shows and writes about 365 stocks that have become 100 baggers (and more) between 1962 and 2014, all stocks that turn $10,000 into $1M and more.

All of them have gone through really big drops, some of them several times. All of the 100 baggers, all 365 mentioned in the book, without one single exception, have experienced a period in which the stock had plummeted 50%. An overwhelming majority dropped more than 75% on several occasions. So be prepared for big drops from time to time and don't let them scare you out of your position.

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Examples

We all know how well Amazon has done over the course of the last two decades. If you had invested $1,000 at the IPO and held all the way through, be a millionaire from that stock alone. And that’s after this big drop we have seen recently.

But this is what you have to be able to endure: since its IPO, Amazon dropped between 10% to 19% 30 times, it dropped between 20% to 29% 15 times, it dropped between 30% to 39% 8 times, it dropped between 40% to 49% 5 times, it dropped more than 50% 5 times and more than 90% 1 time (during the dotcom crash). That 90% is extreme and rare but you should realize that all the rest is perfectly normal to attain such life-changing investments. If you ignore the fact that it's normal, and you don’t prepare for it mentally, you will sell, I can guarantee that.

Netflix is another example. If you would have bought at the IPO, this would have been the result of a $1,000 investment:

Again, it was no smooth ride. This is from August 2011 to September 2012

Down 80%. I can hear the bears calling already: “You need a fivebagger just to be at break-even then!” First, this is negative cherry-picking, as you assume that everyone has bought exactly at the top, secondly a stock that drops so fast has more volatility and can go up fast as well. Of course it’s no guarantee. But this is what Amazon’s stock did in the two years after it had reached its bottom, for example.

A more recent example? Square again (now Block). After the pandemic bottom, it rallied almost 600% in less than a year. Yes, I’m very aware that it fell back quite a bit after that with the crash in growth stocks we have seen, but that’s not the point. I just want to show that after a crash the recovery can be as breathtaking as the drop.

Back to Netflix. Suppose you bought for $10K at the very top then, in August of 2011, you would still have a great result today, despite the big drop recently:

There were also several periods when the stock didn't return anything for years. From 2004 to 2008, for example. Ok, there was a crash in 2008, but still. This is from May 1, 2011 to July 1, 2013, which serves as another example:

I think that pattern is very recognizable for many investors who bought a few years ago. They are either under water or flat.

This is how just how many great growth stocks behave. Sometimes they jump ahead a bit, sometimes they stand still for a few years, testing investors’ patience, and then suddenly sprint back up. That's the positive side of volatility in action. If you have sold the stock because it went down or didn't move much, you miss a lot of the upside, of course.

If you are not patient enough and you don't have a long-term investment horizon or a strict short-term trading strategy, it could be a losing strategy to buy high-growth stocks. And because so many people, the majority of investors, don't have the patience and feel the urge to do something, it's a competitive advantage if you can zoom out and be patient.

There are a few common characteristics in the most life-altering investments in history and high volatility is one of them. You should know that and prepare yourself for that. Hey, even Berkshire, Warren Buffett’s and Charlie Munger’s investing vehicle, was down 50% several times.

I'm sure if you say it out loud a third time, your partner, children and pets won't be as shocked anymore, so here we go again:

All future stock market crashes look like threats, but all past crashes look like opportunities. Think ahead!

If you teach yourself to sit through volatility, that can be your entrance ticket to really life-changing outsized gains, your exam to pass the 'great investor' exam. 

Don't look at the stock price too much

Too many investors look too much at the stock price and the stock price alone. I get it, that’s what we are all bombarded with every day. But unless you are a trader, the information is not there, but in the quality of the management, the vision of the founder, the balance sheet, the growth numbers, the products, the interaction with customers, the options that the company has, etc.

This is the most recent graph I found, but the average holding period for stocks now is just 5.5 months.

This shows that more and more people trade and then investing for the long term can be a real competitive advantage.

Of course, the difficult aspect of long-term investing is holding on to your stocks for a very long time without losing your conviction or patience. There is so much volatility and negativity that you have to be really strong to resist throwing the towel into the ring. If you see a drop in the stock price as a huge risk, it won't be easy to have outsized gains from long-term investing.

Conclusion

Doing nothing in the middle of calamity can be a competitive advantage. You need volatility to have big gainers and if a drop scares you out of your position, you can miss the positive side of volatility, a huge surge.

Many growth investors have sold their stocks already and left the market completely, went to cash or switched to an index fund because they were scared out of their strategy. That’s taking the elevator down and staying there or taking the stairs up. I know I’m in an elevator, which goes down fast but goes up fast too. Knowing what kind of investor you are is very important and your portfolio should reflect your personality. I am emotionally not affected by the big drops we have seen because I have visualized this for years and I keep adding money to my portfolio which allows me to average down in quality stocks.

And how could we end this article better than with the most important thing to remember?

All future stock market crashes look like threats, but all past crashes look like opportunities. Think ahead!

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I hope you enjoyed the article and in the meantime, keep growing!