Special: The Disruption Investor Report Card

Special: The Disruption Investor Report Card

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Editor’s note: Today, RiskHedge Publisher Dan Steinhart sits down for a special one-on-one interview with Stephen McBride to discuss his flagship service, Disruption Investor, and its performance over the past year.

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Dan Steinhart: Alright, Stephen. I’m holding in my hand an audit report. It shows the overall performance of the investment recommendations made inside our flagship Disruption Investor service in 2023.

Let’s review it publicly and talk about what we got right—and wrong—this past year, and what you see as the big opportunities as we enter 2024. Then I’ll give you an overall grade, between A+ and F.

Stephen McBride: Let’s do it. Here’s the backdrop: 2023 was a strong year for markets. The S&P 500 gained 24%, well above its long-term average of 9%–10%.

Although I suspect many investors won’t feel so cheery looking at their brokerage accounts. A lot of folks stayed out of stocks after a brutal 2022, which was the worst year for a balanced portfolio ever.

Dan: Well, the Wall Street forecasters didn’t do them any favors. Almost everyone was bearish coming into 2023. A recent Fortune headline sums it up: “Stocks fool nearly everyone in 2023 with the S&P soaring 24%...”

You zigged, though, and were quite bullish in January 2023. Nice call. But we don’t put a whole lot of faith into anyone’s forecasts—even our own. I’m a big believer that the best investing strategies remove the need to get forecasts right.

Stephen: Agreed. The market will do what it does. We focus on controlling what we can.

Dan: Like a good Stoic. In Disruption Investor, you recommend only profitable disruptive companies. This is a change we made at the beginning of 2023. You had always focused on profitable companies, but we made it an official pillar of Disruption Investor this year...

Stephen: We try to get better every year. In 2022, I had some misses that boiled down to recommending companies that were growing very, very fast and had phenomenal business prospects, but weren’t yet profitable.

These kinds of stocks can be all-time great investments. Amazon (AMZN) wasn’t profitable from 1997 to 2003, yet it soared 840%. Tesla (TSLA) wasn’t profitable from 2010 to 2020, yet it soared 18,421%.

Dan: The world’s fastest-growing companies are unprofitable almost by definition. They tend to re-invest every cent into their blistering growth.

Stephen: Yes. And again, they can be great companies. But they tend to be fragile. Factors they don’t control must go their way—interest rates, economic growth, sentiment—for their stocks to rise.

Instead, in Disruption Investor, we only recommend profitable and growing businesses in disruptive megatrends. The kinds of stocks we expect to do great in good times, but that you’d also be happy to own—or buy more of—if we ever get that recession everyone’s waiting for…

Dan: Let’s talk results. We’ll get to the overall return of the portfolio vs. the market in a minute. First, let’s talk win rate.

In 2024, you and Chris Wood—your partner in Disruption Investor—recommended 25 investments: 24 stocks and 1 crypto.

20 of these were winners. Good for a win rate of 80%.. Congrats.

Stephen: Thanks.

Dan: Anything to add?

Stephen: Readers may not know we invested heavily in Disruption Investor this year. We brought on Chris Wood. He’s the best fundamental investor and financial analyst I’ve ever worked with. We only recommend stocks that we unanimously agree on. Our research analyst, Alex Toussaint, is a whiz too.

Dan: We also have an app now… along with a growing list of Members Only events inside Disruption Investor.

Back to the results. Readers might be tired of hearing about Nvidia (NVDA), but it was the best-performing stock in the S&P 500 last year. Up 233%. You held it in Disruption Investor all year.

But aside from that, I think you’ve written more about Nvidia than any other analyst. In 2018, you now famously titled an article picked up by Forbes: “If I could only buy one stock for the next 5 years...”

Here we are five years later, and Nvidia is the second-best-performing S&P stock since 2018, having gained 1,132%. The only better-performing S&P 500 stock is solar company Enphase (ENPH).

But it wasn’t always easy, was it?

Stephen: I was about to say… everyone forgets what happened in 2022. NVDA declined almost 75% at its lows!

Dan: How’d you know to hold on?

Stephen: Well, we took profits during the blow-off market top in November 2021, which made our position risk-free. It’s a lot easier to ride out a tough period when you can’t lose money, and the only thing in question is how much money you’ll make.

On a deeper level, it was clear to me that Nvidia was an all-time great business uniquely positioned to benefit from the coming explosion in artificial intelligence spending. Although its stock retreated, the quality of its business was never in question. And this was very clear in its financial results.

Even today as we talk in January 2024, Nvidia has actually gotten cheaper over the last two years.

Dan: The stock has gone from $140 to $500, yet it’s gotten less expensive. Explain that, please.

Stephen: “Expensiveness” is about what you get vs. what you pay. Is a $1,000 watch expensive? Well, is it a Timex or a Rolex?

With stocks, what you “get” are earnings and cash flow, which ultimately result in capital gains and more money in your pocket. Nvidia’s stock price has grown fast. But its earnings have grown faster.

Hence, Nvidia is cheaper today than it was two years ago, even though its stock price is much higher.

—To be continued on Friday—

Editor’s note: If you’re reading this, you’re eligible to join Disruption Investor at a $100-off discount when you act during this Report Card series. Click this link to review your special deal.

Stephen McBride
Chief Analyst, RiskHedge

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