| Editor's note: Today, we're sharing an essay from our colleague Enrique Abeyta, editor of Empire Elite Growth. In it, he argues that traditional value investing is dead... and explains what investors should look for in finding stocks with the biggest upside potential.
The One Tailwind That Multibagger Stocks All Have By Enrique Abeyta  The question of 'growth' versus 'value' is one of the most commonly debated topics in investing...
The value side has a lot of outspoken defenders – and it's easy to get behind. After all, most people understand the importance of "buy low and sell high." But here's the thing... if your ultimate goal is to make money, value doesn't matter at all. The way to make serious money as an investor is always growth. It's the strongest tailwind in the market. And you might be surprised to hear it, but it's the path to potentially huge outperformance – even when the broad market is down. Generally, most folks identify as value investors. Though you can define "value" in many different ways, let's keep things simple and define it as a stock that's cheap relative to its overall peer group. During the early days of investing legend Warren Buffett's career – and well before the Internet – you could find companies truly trading for 10 cents on the dollar. Today, that's not the case. With Bloomberg at our fingertips, we can access almost any piece of financial data in milliseconds. As a result, it's impossible to find truly undiscovered value opportunities in the market. The kinds of opportunities Buffett built his career and reputation on don't exist anymore. In fact, I'd go so far as to argue that the traditional value investing on which Buffett built his reputation is dead... It's been dead for quite some time, actually. Even Buffett would probably agree. Having said that, value opportunities do still exist. But they're rare, and more often than not, they're illiquid... or they're fake values (i.e., "value traps"). As a result, for the individual investor, great value investing opportunities will likely never be available again. Even when you think you may have found one, the stock is often cheap for a reason... Stocks don't get cheap because the company is firing on all cylinders. Instead, they're almost always cheap because they are losers and aren't executing properly. The most dangerous strategy for investors is to aim for the "middle" – buying $1 worth of assets for $0.30 or so. This is where you appear to find good values, but you aren't actually getting a bargain. More often than not, these stocks go to 10 cents on the dollar before they ever move higher – if they move higher at all. Now, you can buy a stock for 10 cents on the dollar. If it closes the gap, you'll make 900%. The problem is that in today's market, again, these stocks don't exist like they used to... And the ones that do are more likely to burn you. Usually, these kinds of stocks will go to $0, and you'll lose all your money. Stocks trading at 50 cents on the dollar are easier to find – and less likely to go to $0. If they close the gap, you'll double your money – certainly nothing to sneeze at. But if you're looking for real multibagger potential, look no further than growth stocks. If a company grows its earnings per share from $1 to $5, its shares are likely to go up 1,000% or more. And there are a lot more companies with this kind of growth potential in the market today – making them a lot easier to find than value stocks. Growth is great... But we want extreme growth. It's the strongest tailwind in the market. Value investors make one final argument for their strategy... The popular perception is that over time, value outperforms growth. This is true – if you're looking at a vast group of stocks. So value investors end up focusing heavily on the performance of the broad market... If the market is down, they believe growth can't possibly outperform value. But if you're focused on actually making money, the concept of market rotations is completely irrelevant. You can always find a handful of growth and value stocks that will outperform the overall market. All you need is a small portfolio of winners. Great companies with long histories of strong performance and strong positions in their markets will continue to grow... even through the worst economic downturns. Consider this: In 2008, the S&P 500 Index finished down nearly 40%. But 2008 was a great year for certain stocks...
What did all of these companies have in common? They had good (to great) earnings growth right through the financial crisis.
Over the past five decades, at least 50 stocks have risen 50% or more in any given year – even in the worst bear markets. Typically, those stocks are growth stories. Find the winners, and you'll make money regardless of what the market is doing. The value versus growth debate is pointless. If you want to make real money in the market, it's always about growth. And right now, I've found one of the greatest growth stocks I've ever seen... It's a way to invest in the red-hot cryptocurrency space... without having to buy a single crypto like bitcoin or opening a digital wallet to take advantage of it. If you were an early investor in some of the most successful cryptos, you could have turned a small stake into a legitimate fortune – watching your money multiply hundreds of times. But, of course, that's only if you invested early... and only if you picked the right crypto. Fortunately, if you've stood on the sidelines, this opportunity is a simple way to profit off the crypto craze for a shot at 1,000% potential gains. In fact, I'm so bullish on this stock that I've just published a new presentation where I go over everything you need to know to get started... and slashed the price of my Empire Elite Growth newsletter to make accessing this research as affordable as possible. Get the details right here. In the mailbag, reactions to Monday's essay on the surprisingly low jobs number and the difficulty employers are having filling open positions... Where do you stand on the value versus growth debate? Do you agree that "traditional value investing" is dead? Share your thoughts in an e-mail to feedback@empirefinancialresearch.com. "I'm sure you've heard before but there is no doubt that the increased unemployment benefits are keeping lower wage workers from reentering the workforce. I know this to be true as I own three restaurants that actually do great business and can't find workers. My average servers make about $20/hour and I can't get anyone. We put an ad out and we get 10 people to apply and only one shows up. All they need to do is apply to continue to receive benefits. My employees have told me this directly. It makes me furious." – Bruce G. "Obviously you don't understand how unemployment insurance works. "In order to file a claim for unemployment benefits, the unemployed worker must keep documented evidence of all attempts to look for work including phone calls, employers to whom resumes were submitted, job interviews, receipt of acceptance or rejection letters and so on. The claimant must keep this record for the duration of the claim period and for a certain period of time after the claim period is over. "Furthermore, if a claimant obtains temporary or part time employment, that does not necessarily disqualify the claimant from receiving unemployment benefits although it can increase the claimant's income during the unemployment period. The idea that most claimants are committing insurance fraud because there is a financial incentive to do so is as uninformed as it is ludicrous. Such 'pfa' (plucked from air) is not supported by any evidence and has no place in an advisory letter such as this. "This entire letter has little or no basis in fact (but aversion to facts has become the hallmark of Republicans). In any event, making investment decisions based on such spurious logic is asking for trouble. Responsible investors will simply ignore such nonsense." – Eric S. Berna comment: Eric, I've collected unemployment insurance ("UI") a few times, including after the tech wreck in 2000 and 2001 and the housing meltdown in 2008 and 2009, when so many firms went under quickly. Not once have I ever been asked to offer evidence that I was looking for a job, although I know in theory that's how it is supposed to work. Given the unprecedented jump in people collecting UI in 2020, I find it hard to believe the government would suddenly be more comprehensive in checking that people were actually trying to secure a job. Enforcement of the rules has historically been spotty at best – at least here in New York. I can't speak to elsewhere. The evidence I have that some – I never said most – people could be working full-time under the table while collecting UI is admittedly anecdotal, but I'm sure it happens. However, this is most likely a rounding error in terms of the number of people collecting. The more credible explanation offered by conservatives is that supplemental unemployment is keeping people out of the workforce... We'll know better in the fall how credible this thesis is, once the supplements start to roll off. I suggested in the essay that a very large piece of the labor shortage is comprised of all the women who are stuck at home standing in as elementary or middle school teachers as schools remain shuttered. If you think that too is something I'm plucking from the air, I suggest you talk to some moms of young children about how the last year has gone for them. "Berna, There is no such thing as a shortage, labor or otherwise. What this means is that businesses are unwilling to pay the wages that would otherwise staff their companies with all of the people they needed. Furthermore, if their operations are chronically understaffed, then how are they serving their customers? Think of a homebuilder that has a contract to complete a house by a certain time, with milestones that need to be reached before additional monies are released. Is this homebuilder complaining about a shortage just sitting on this contract, not completing it, and incurring costs and penalties, while exposing himself to lawsuits? This is a better solution than simply paying a higher wage? Yeah, these tears about shortages should be ignored." – O.P. Berna comment: I get what you're saying, O.P. If in the end the thesis that higher unemployment benefits are keeping people out of the workforce proves true, it raises questions about the absolute level of wages. If the minimum wage – or what some of these hard to fill jobs are paying – isn't a living wage, I'm not surprised that workers are pushing back at this moment, the first one in a long time that they enjoy any leverage. If you believe in free markets, you should believe in people's right to demand a wage where the market will clear as well. If you look at the market for labor as just another market – no different than the one for stocks, bonds, or cryptocurrencies – then the right price may be the one that will shake out willing sellers (i.e., workers with time to labor). Is anyone crying that companies have to pay more for lumber or copper now? Why should people's time not be subject to the same laws of supply and demand? Regards, Enrique Abeyta
with Berna Barshay
May 13, 2021 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply sign up here. |
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