This Is How I've Build My Monster Growth Portfolio!
This Is How I've Build My Monster Growth Portfolio!
The Biggest Market Misjudgments Occur with Growth Companies.
Dear Investors,
Today, I'd like to share my insights on how to build a monster growth portfolio!
Growth investing, as exemplified by Peter Lynch, is based on the idea that markets often misjudge the value of growth due to uncertainties, surrounding growth, leading investors to take shortcuts and neglect thorough research.
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The key premise of growth investing is that markets are more likely to make mistakes in evaluating a company's future growth rather than its existing assets.
Lynch believed that by doing the work—understanding management and identifying companies with real growth potential—an investor can profit significantly.
Lynch's core philosophy centered on the idea that while markets generally correctly value mature companies, they often err significantly with growth companies.
He argued that the market correction would occur when these selected companies demonstrate tangible growth, forcing the market to acknowledge their real value, thereby increasing their stock price and yielding profits for the investor.
This philosophy is about discerning where markets make errors in valuation and how these mistakes are corrected.
Lynch's strategy focused on identifying undervalued growth companies and capitalizing on market adjustments when these companies' true value was recognized.
Understanding Market Mistakes in Valuing Growth
Growth investing, a philosophy I've passionately followed, hinges on the understanding that markets often misjudge the value of growth due to inherent uncertainties.
When there's uncertainty, people tend to take shortcuts, failing to do thorough research. This is where growth investors find their edge.
Growth investing is predicated on the belief that the market is more prone to err in valuing future potential (growth) than in assessing current assets or accomplishments.
This mistake usually occurs because evaluating growth involves dealing with a lot of unknowns and uncertainties.
The biggest market misjudgments occur with growth companies.
Many investors in this space are traders focused on price momentum rather than on the intrinsic value of the company's growth.
By deeply understanding and valuing the growth prospects of these companies, often through engaging with their management and analyzing their strategies, an investor can uncover significant opportunities.
The Correction Mechanism
The market correction occurs when growth companies, which I've identified and invested in, demonstrate their potential through actual performance.
As these companies deliver growth efficiently and sustainably, the market eventually recognizes their true value, leading to an appreciation in their stock prices.
The Lynch Approach: Valuing Growth Efficiently with the PEG ratio (Price/Earnings to Growth ratio)
This metric was a novel way to compare a company's valuation (as reflected by its P/E ratio) with its growth rate.
However, it's important to note that the success of this approach wasn't just about this ratio. It was about a consistent focus on identifying growth companies that were undervalued by the market.
The growth investing principles to Microsoft MSFT 0.00%↑, in 1990 (and today), can illustrate how this strategy might work in practice.
1. Identifying Underestimated Value in Growth:
In the early stages of Microsoft, the market might have underestimated its potential due to uncertainties in the rapidly evolving tech industry.
Investors could have seen Microsoft as just another software company among many, failing to recognize its unique potential for growth.
2. Thorough Research and Understanding Management:
An investor following Lynch's approach would have conducted detailed research into Microsoft, going beyond surface-level analysis.
This would include understanding the vision of Bill Gates, the company's competitive advantages, its innovation in software development, and its plans for expansion.
3. Recognizing Potential for Real Growth:
Microsoft, in its growth phase, was pioneering in developing operating systems and office productivity software.
An investor using Lynch's strategy would recognize the potential for these products to dominate the market, foreseeing the massive growth ahead.
4. Market Correction and Recognition of Value:
As Microsoft started to demonstrate tangible growth with widespread adoption of its Windows operating system and Office suite, the market began to recognize its true value.
This recognition would be reflected in the company's increasing stock price.
5. Capitalizing on Market Adjustments:
Investors who identified Microsoft’s potential early, as per Lynch's strategy, would benefit from the market adjustment.
As the company's real growth became apparent and its stock price rose, these early investors would see significant returns on their investments.
Applying Lynch's growth investing philosophy to Microsoft would have involved recognizing its underestimated growth potential in the tech industry, conducting deep research into the company and its leadership, and then investing with the expectation that the market would eventually correct its undervaluation, leading to profitable returns.
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My Monster Growth Portfolio & How I've Build it!
This is what I hold:
11 Stocks
1 Digital Asset
Average 3Y Performance: 33.8% vs S&P500: 11.7%
Here’s the breakdown of my holdings: