In general, there are two types of successful investors – and they don’t understand each other. Corresponding to each winning type, there is a losing type.
One winning type buys what Peter Lynch called “stalwarts” and is exemplified by Warren Buffett. The other winning type buys what Lynch called “fast growers” and is approximated by Mark Minervini. Michael Moe wrote the book for this latter type of investor: Finding The Next Starbucks.
It’s very hard to go wrong buying a great company like Walmart (WMT) or Procter & Gamble (PG) and holding for the long term. This is The Warren Buffett Way – to use the title of an excellent book on Buffett’s style by Robert Hagstrom. On the other hand, the successful “fast grower” investor buys stocks like Palo Alto Networks (PANW) that seem expensive on near term valuation metrics – but more than grow into their valuations. This style is more hit and miss, but the big winners make up for the losers.
What the two successful types have in common is an emphasis on quality companies. Where they differ is at what stage in their growth cycle they buy these companies.
Each winning type has its related losing type. The poor man’s Warren Buffett buys value traps like Lyft (LYFT) – or possibly Zoom (ZM). These stocks look cheap on current year valuation metrics – but are in fact declining businesses. The poor man’s Minervini buys overly speculative stocks like Upstart (UPST) that may soar for a while but ultimately crash – and holds them all the way down. These stocks have great stories but no substance.
Different temperaments tend to be comfortable with one style or the other. Personally, I’m more of a “stalwart” investor. I sleep well at night owning WMT, PG, McDonald’s (MCD), etc… But I know that there are successful “fast grower” investors, too.
“Breaking My Value Trap Habit / Mark Minervini On Leaders Vs Laggards”, Top Gun Financial, November 16, 2020
“PG And The Investment Lesson You Must Learn”, Top Gun Financial, April 21, 2023