Friends,
Nearly all of my (Stoffel, here) early experiences in investing came from The Motley Fool. The education was top-notch: it prioritized the strength of the underlying business, focused on the long-term, and modeled keeping calm during times of chaos.
But -- as with any organization -- there's no way it could cover everything. Case in point: "technical analysis" -- making investment decisions based on charts and momentum, not the underlying business. I often treated it as a four-letter word.
That changed two years ago when a friend offered a twist I hadn't considered:
You don't have to choose between technical and what you're used to doing [fundamental analysis]. Keep doing what your thing: find antifragile companies trading at reasonable prices. Simply layer in technical analysis to help you time your decisions better.
In no area has this proven more fruitful than in being patient with building a position in companies that:
- I believe have long-term potential
- Are currently seeing their stock prices collapse.
In the past, I would have run out and built a full position as soon as a stock fell.
Let's use Mediterranean restaurant Cava as an example:
- Business: While not classically "antifragile", Chipotle has taught me what a well-run, laser-focused fast casual chain can accomplish.
- Growth: There's a long runway for growth, given it has a goal of 1,000 locations by 2032 -- a 13% CAGR of new stores between now and then.
- Valuation: This summer, given that it was performing better than industry rivals and the aforementioned growth, I thought the valuation was reasonable.
In the past, I would have built a large position. Instead, I made it just 1% of my portfolio. That's because it was below its 200-day moving average, and that average was falling -- both very bad technical signs.
The stock has fallen another 20% since then -- meaning I can pick up shares for even cheaper once two things occur:
- The 200-day moving average trends upwards
- The stock moves above that threshold
This is far from an exact science. And by no means am I abandoning the fundamental approach that's helped earn market-thumping returns over the past decade-plus. But it is something I'm willing to experiment.
In the end, this post isn't even really about technical analysis. It's about trying to always keep a reasonably open mind to new approaches.
It can feel uncomfortable at first, but over the long run, it's often what spurs growth -- and that's worth its weight in gold.
Wishing you investing success,
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Brian Feroldi, Brian Stoffel, & Brian Withers
Long-Term Mindset
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P.S. It's Official, we are splitting up our YouTube Channel. Brian Stoffel is starting a new channel that will cover earnings, his portfolio moves, and more. Subscribe to his new channel by clicking here.
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