Brad’s Note: Today, I want to share a story from my right-hand analyst, Stephen Hester.
Stephen is one of the few people I know who has truly done it all and seen it all.
He earned his CFA and spent nearly a decade on Wall Street, working with some of the biggest names in finance. His focus was on risk management and due diligence for deals worth up to $25 billion.
That’s a lot of pressure to make sure you get things right. But Stephen has cultivated the expertise to find the best setups. And now, as part of our Wide Moat Research team, he shares that experience and research with you.
One thing that sets Stephen apart is how he’s earned that experience. It wasn’t just by sitting behind a desk and reading balance sheets. His life has been fairly unconventional, even by Wall Street standards. But – like me – he knows that’s how you learn the most valuable lessons.
Stephen’s story highlights why it’s important to constantly be learning from your mistakes and applying that knowledge to all aspects of your life.
And sometimes, as in today’s case, it means remembering the basics.
It’s 2017, and I am in Belgrade, Serbia. I’m pacing up and down Pariska street wearing black motorcycle leathers.
It’s hot. Texas hot. And I need to ride back to Croatia tonight.
Instead, I am well on my way to learning a valuable lesson.
Despite all my planning, I made a cardinal sin.
Here at Intelligent Income Daily, our research team has already paid the painful price tag of experience so that you don’t have to. Our goal is to catapult you toward financial freedom by providing a clear cut roadmap to follow.
Today, I’ll remind you that the most important aspects to investing are the easiest to forget and explain how you can avoid the critical mistake I made by paying attention to the bottom line.
Navigating the markets requires the same tools as navigating the globe. Preparation is key. Mental toughness isn’t optional. And you want to master as many tools as you can without forgetting the basics.
My Motorcycle, Your Portfolio
At the start of this story, I was about a month into a solo motorcycle trip through Eastern Europe and Turkey.
It wasn’t always easy. My BMW broke down on a remote Romanian mountain pass. It overheated several times in traffic outside Istanbul.
I was even detained by police officers in Gaziantep near the Syrian border.
But as I sat on the curb that day in Belgrade, all that seemed trivial. My motorcycle was gone. It had my laptop and almost everything else. That laptop was my only way to the internet.
And I had no idea what happened to it. After finding college students to serve as translators, I learned what happened from a nearby security guard.
The French Embassy had towed my bike to an unknown location. He warned me the tow lots were corrupt. They were full of dusty vehicles with foreign tags like mine. He said it wouldn’t be easy to get it back.
He wasn’t wrong.
I eventually figured it out. But it cost me a lot of time, stress, and Euros. What did I do wrong to get in so much trouble? I parked in front of the French Embassy.
Shockingly, there were no “No Parking” signs. And yes, there were plenty of other cars there.
But the locals know those were all Embassy officials. If you were anyone else, they would tow your car in a heartbeat.
And now my bike was locked in a cage and it would be a while before I’d get it back. My mistake was forgetting just how important that motorcycle was to my plan. It should have been my first concern, but it wasn’t.
Like my bike, you can’t walk away and trust that your portfolio will be there whenever you get back to it. You have to be cautious about where you leave it because it is your financial means of transportation to navigate through life as you know it.
Just like I forgot this fact, many investors forget the most fundamental thing to look for when picking companies to invest in.
The bottom line.
Never Forget the Bottom Line
Many people remember Carvana (CVNA). It was a tech darling. And also the third-fastest company to make it onto the Fortune 500.
Only Amazon (AMZN) and Google (GOOG) were quicker.
For years, it was the disruptor in the automotive industry. Nobody liked regular car dealerships. Carvana even had car vending machines. There is one about a mile from my house in Austin, Texas.
What’s not to love about that?
It’s still around today, but there’s just one small problem.
The business model isn’t profitable. The company loses between $250 million and $500 million. Not yearly. Every quarter.
The company says they have a gross profit per vehicle of $3,022. It used to be $4,537 in 2021.
That still seems good, but did you catch it? Gross profit. Not net profit.
Carvana can’t pay its employees or investors with gross profits. Once you factor in actual costs, the company loses thousands on every car it sells. It’s always been that way.
So no matter how fast or large it grows, Carvana is dead money.
It is a literal ticking time bomb.
It’s like parking your cash right in front of the French Embassy and walking away.
We can get caught up in all the little details. What’s this stock’s dividend yield? Is the Fed going to keep raising interest rates? Should I go to cash for a few months?
But a company’s bottom line is the most important place to start. If you forget that when investing, you’ll end up sitting on a curb in Belgrade wondering where your portfolio went.
The most important aspects to investing are the easiest to forget.
Make sure to prioritize them, even if it’s not as fun as chasing the latest trend. Always diversify your holdings. Buy quality companies you are comfortable holding in bull and bear markets.
And for God’s sake, check the bottom line of the companies you are investing in.
At Wide Moat Research, that’s our specialty. We focus on quality companies that can build wealth in good times and bad. And we do not forget the fundamentals.
Brad Thomas and I research the best and safest alternative income investments out there. To learn how to get our best research on income-producing investments to beat all market conditions, sign up for our Intelligent Income Investor service.
And just one final word of advice. Every once in a while, check to make sure your portfolio is parked where it should be.
Analyst, Intelligent Income Daily