Subject: Re: OT: big companies
After all, the whole idea of not worrying about current earnings from a growth company is that you'll get lots and lots of them later, which is fine.

But if the earnings don't eventually arrive, the only way to get a good investment outcome is if the market is still assigning a very high multiple in the distant future: it's still trading at a very low earnings yield.
That certainly does happen.
But it doesn't happen frequently, and the exceptions can not be identified in advance by mere mortals, which is why the average outcome from is so very poor if you overpay for future earning power.
Spotting today's optimists is easy, but spotting the things they will be very optimistic about a decade from now can not be done reliably.

From a growthy investor's point of view, the logical fallacy here is the requirement that predictions of future earnings be accurate with respect to individual stock choices. It is quite true that few if any investors have proven able to pick and choose in advance the relative handful of big winners out of the multitudes of aspirational growth companies at any given time.

As the old retail joke goes, they make it up on volume! Successful growth investors often buy scores of promising companies, hundreds in most cases, and let the winners, which neither they nor anyone else can name in advance, carry the portfolio.

It is also quite true that, in retrospect, examining the P/E ratios of these big winners at the time of purchase was not especially useful.

Instructive examples are The Motley Fool's Stock Advisor and Rule Breakers newsletters, which now have histories of 20 years or so. You can go to their website and see performance records for their many, many recommendations -- two per month is the longstanding policy. They helpfully offer a tab listing closed positions as well, but it goes back only a couple of years, so the full data set to check their performance results is not available on the current website. Perhaps the wayback machine would allow an industrious data miner to reconstruct it, but the amount of work this would require does leave skeptics an opening to doubt the published results. (You might need subscriptions to these letters to access the site; I bought mine years into the future sometime back after TMF moved on to more lucrative products and you could do it very cheaply.)

Unless they are a fraud -- always a non-zero possibility -- both portfolios, each including hundreds of stocks -- 187 active recs for SA at present; 142 for RB -- have beaten the market over their relatively long histories.

According to their website, SA, launched in March 2002, and RB, which debuted in September 2004, have both beaten the S&P 500 by 134% over their lifespans. The nearly identical results are not as surprising as they sound when you consider that David Gardner's gift for seeing around corners was the foundation of both letters. The outperformance is the result of a simple arithmetic fact: The most a poor choice can lose is 100%. The most a good choice can gain is many, many times that. So it doesn't take that many good choices to compensate for a boatload of poor ones.

For example, SA's April 15, 2005 rec of NVDA, at a split-adjusted price of $1.63, is up 28,537%, beating the index by 28,060%. Its Dec. 17, 2004 rec of NFLX is up 22,861%. The 2002 rec of AMZN is up a paltry 17,000%. The letters re-recommend stocks the authors especially like, and each re-rec counts as a new position. Of the top 10 SA picks of all time, five are Netflix.

Over at RB, where the gains are slightly less stratospheric having missed '02 and '03, Tesla is the biggest winner, at over 12,000%, followed by Mercadolibre, Intuitive Surgical, Salesforce, Chipotle and Shopify, all with four-figure percentage gains.

In short, like the QQQ of today, a few gigantic winners carried them to victory over the broad market, assuming you believe their math, of course.

As a subscriber for years, my objection to Stock Advisor and Rule Breakers was that few if any individual investors I know are willing to maintain portfolios comprising hundreds of stocks. That was the only way to replicate TMF's results. Most subscribers, I suspect, did what I did, picking and choosing among the many recs a dozen or two names that seemed most promising.

About that strategy, mungo is completely right. At least, he was in my case. But the volume strategy has worked for TMF, just as it worked for Peter Lynch. It works pretty much the way the minor leagues work in baseball. You sign every promising prospect you see and let the cream rise to the top.