You Can Be Wrong 80% of the Time and Still Win Big

Most investors believe they need to pick more winners than losers to make a fortune. 

They're wrong.

I know that sounds crazy. But after more than four decades on Wall Street, I've learned something important.

Making money isn't about how often you're right. It's about how much you make when you're right compared to how much you lose when you're wrong.

A single extraordinary winner can more than make up for several disappointing investments.

Yet most investors approach the stock market differently.

They want every stock in their portfolio to go up. When something falls, they feel they've made a mistake.

And when a stock rises 30% or 50%, they're often eager to lock in their profit.

That's not how the greatest fortunes are built.

Some remarkable research shows why.

Finance professor Hendrik Bessembinder studied nearly 26,000 American stocks from 1926 through 2016.

His findings should change how you think about investing.

Just 4% of those companies accounted for the stock market's entire net wealth creation above short-term Treasury bills.

Think about that.

Over 90 years, thousands of companies traded on American stock exchanges.

Yet just over 1,000 companies produced all the market's net wealth creation above Treasury bills.

The remaining 96%, taken together, generated returns comparable to Treasury bills.

That doesn't mean every company outside the winning group lost money.

Some delivered respectable gains. Others went bankrupt or disappeared after years of disappointing performance.

But the extraordinary gains from a small number of businesses overwhelmed the results of everyone else.

A small group of exceptional American businesses created an enormous share of the wealth investors enjoyed.

And that's the lesson I want you to remember.

You don't need to own every winning stock to build a fortune.

You need to find a few exceptional businesses and have the patience to let them become extraordinary investments.

Here's where investing gets difficult.

Nobody can identify every future superstar in advance.

I've been investing for more than four decades. I've made recommendations that worked beautifully.

I've made mistakes, too.

That's part of investing. Even the greatest investors get things wrong.

A competitor introduces a better product. Management makes a poor decision. An industry changes unexpectedly.

Sometimes our original analysis simply turns out to be wrong.

The goal isn't to eliminate every mistake. That's impossible.

The goal is to make sure our winners have the opportunity to become much bigger than our losers.

Let me show you how the math works.

Imagine investing $50,000 across five stocks, putting $10,000 into each company.

Two stocks decline 30%. Two gain 20%.

The fifth becomes an exceptional business, growing tenfold over several years.

Here's what your portfolio looks like.

Your original $50,000 has grown to $138,000.

That's a 176% gain, even though two investments lost money.

Now imagine something even more surprising.

Suppose all four other stocks decline 30%.

Those four investments are now worth $28,000 combined.

But your tenfold winner is still worth $100,000.

Your total portfolio reaches $128,000, representing a 156% gain.

You were wrong on four out of five investments and still more than doubled your money.

A single exceptional investment can change the outcome of an entire portfolio.

Here's what I've seen investors do throughout my career.

They buy a wonderful business at an attractive price.

The stock rises 30% or 50%, and they rush to sell.

They congratulate themselves for locking in a nice profit.

Meanwhile, a struggling business falls 30%, and they refuse to sell because they want their money back.

They keep waiting, even when the original reasons for owning it have disappeared.

They're giving unlimited patience to their mistakes while cutting their winners short.

That's backwards.

A stock that doubles can double again. A business that keeps growing earnings can become far more valuable over time.

Selling simply because the stock has risen can mean walking away before the real wealth creation begins.

That doesn't mean we should hold every winner forever.

Valuation matters. Business quality matters. Our original investment thesis must remain intact.

Sometimes selling a successful investment is absolutely the right decision.

But a rising stock price, by itself, isn't a reason to sell.

This is exactly why I created the American Prosperity Report.

My goal is to help you find exceptional American businesses with the potential to build lasting wealth.

We look for four things…

These are the qualities that can turn a good business into an extraordinary investment.

Will every recommendation become a big winner? Of course not.

I've been investing long enough to know that even the best research cannot eliminate mistakes.

But we don't need to be right every time.

We need to find a few exceptional businesses and give them the time to become worth many times what we paid.

That's the opportunity I want to help you capture through the American Prosperity Report.

America remains the greatest wealth creation engine in history. New industries are emerging, established businesses are becoming more productive, and entrepreneurs are finding better ways to serve customers.

Some of these businesses will become the next generation of extraordinary wealth creators.

Our job is to identify them while their stocks are attractively priced, then have the conviction to hold as their value grows.

You don't need to own every great American company to build a fortune. 

Through the American Prosperity Report, my goal is to help you own the few that can make all the difference.

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If you have questions, you can send them to me at [email protected].

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Regards,

Charles Mizrahi
Prosperity Insider