Hello reader, welcome to the latest issue of HX Weekly!

Each week we bring you a new edition of HX Weekly that includes three distinct sections.

In the first section, Thoughts on the Market, we'll offer insights into current economic and market news.

In the second section, HX Daily Redux, we'll revisit investing concepts, tactics, and more from past issues of HX Daily.

And in the third section, Market Wizard’s Wisdom, we’ll share thoughts, quotes, and theories from the greatest investing minds of all time.

Now, let's dive in!

Thoughts on the Markets

Optimism Wins

As we get older, we get a better understanding of our biggest strengths and weaknesses.

Most of us also eventually understand that very often they are one and the same.

As many of you know, my (Enrique Abeyta) childhood was a rough one. We wrote about this in last week’s HX Weekly.

Again, I had the blessing of a wonderful mother who led us through those tough times, but she also instilled in me one trait above all others.

OPTIMISM.

Now in the markets, many investors mistake the idea of optimism with the idea being “bullish” on the stock market.

They are not the same.

Being “bullish” means that you believe that the primary trend in the market will be higher. Stocks will go up.

Being optimistic means that you believe that YOU are going to be able to make money in ANY market environment.

These are very different traits.

My career on Wall Street was built on this second idea.

My very first hedge fund was launched in March 2001 with just $585,000 in assets under management. My partners were 29 and 31 at the time and I was 28 years old.

We borrowed money to pay our bills from a legendary trader and if we didn’t make money in our first six months we were out of business and probably personally bankrupt.

THAT kind of move takes some real belief that you are going to succeed.

A big part of our belief was that we knew we could make money in any market environment.

March 2001 was while the stock market was still in the throes of the post-Internet bubble collapse. It was also just six months before the terrible events of September 11.

We built our fund – and investment strategy – in the midst of this chaos.

We did not have the benefit of being able to be bullish because almost no stocks were going up. Many – if not most – were going down, and down a lot.

Given the situation where we would be out of business if we didn’t make money, we couldn’t afford to focus on a “world view.”

Instead, we had to focus on one and only one goal – MAKING MONEY.

Our long-time readers will recognize this phrase as it is the one motto I have pushed most strongly in my writing career.

My former partner Whitney Tilson once asked me, “What kind of investor are you?”

My answer was, “I am not a value investor, nor a growth investor or even a momentum investor. I am a MAKE MONEY investor. That’s the job, isn’t it?”

It is THIS mentality that we are trying to share with our readers.

The most important characteristic you can have in the markets is being open-minded.

Markets go up, markets go down and markets go sideways. There are ways to make money in EACH of those kinds of markets.

We are here to help guide you on creating a process that will work in each environment. We are also here to help you figure out which type of market we are in right now.

Finally, though, it is up to you to do the work, open your mind and BELIEVE in yourself that you can win in any market.

Remember, OPTIMISM WINS.

HX Daily Redux

Bet on OPTIMISM

To our point about OPTIMISM, here is a note that we published around this same time last year as well as in 2020.

We think the ideas in here are applicable ALL the time. Enjoy the note, and have a great weekend!

Last week, a friend asked me to present to a group of Arizona State University students – mostly in their late teens and early 20s – taking a class on investing and money management.

Throughout my career, I've always enjoyed events like these. One reason is that they allow me to share what I have learned—good and bad—over my 25-plus years of investing.

The other reason is more selfish, however... It often leads me to crystallize some of my thinking about investing.

The most interesting question my friend asked me to address in the presentation was: "What advice would you give to 21-year-old you about investing?"

Regular readers shouldn't be surprised at my one-word answer: "growth," which means to invest in growth companies and stocks.

He laughed and said, "We know that one! You've said it 50 times in the last hour... But besides growth, what would be your second-best piece of advice?"

At this point, I was a bit flummoxed. Those of you who have seen me on video know that I'm seldom without a response, but I sat there and really thought... and thought... and thought. Finally, I said...

“Honestly, I don't have a second piece of advice. A focus on growth investing is so much more powerful than anything else you can do that it would be all the top 10 pieces of advice I would have. No. 10 would take some time to enjoy investing... but No. 1 through No. 9 would be investing in growth companies and stocks.”

This is the honest truth. Had someone really emphasized this to me when I was 21 years old, not only would I be much wealthier than I am right now, but I also would have been much less stressed.

But despite my belief in the superiority of growth investing, there's still volatility. You can lose a lot of money in the short term... and if you're wrong, you can lose a lot.

And yet, if I look back at my career and the amount of mental energy versus return that I spent on growth stocks compared to other types of investing – such as value or distressed – it's not even close. The "stress to return" ratio of growth is 50 times better!

The events of this past week had me thinking even deeper about this advice...

We've seen considerable angst about political events, a surge in COVID-19 cases in both the US and Europe, and a correspondingly difficult stock market.

As I considered my advice to myself in this context, I began to think about it in a new light... instead of "growth," I would say "optimism."

I remember when I began my professional investing career and worked for a 40-plus-year market veteran named Martin Sosnoff, the founder of Atalanta Sosnoff Capital.

I was in my mid-20s then, and I would have to give Martin presentations on stocks right after the market opened. (I still remember those meetings so clearly... He was always smoking a big fat Churchill cigar as I sat down with him.)

What sticks out are the times that I brought him an idea that I had spent a hundred hours on, built an extensive model for, and done tons of boots-on-the-ground research on. I would excitedly go through the idea and my model in detail.

After my hour-long presentation, Martin would sit back and say, "This all sounds very interesting... but remember, all you really need to do is find some really great companies. Buy those and forget about it."

In retrospect, I wish he would have been more forceful and said instead, "You idiot! You're wasting your time and energy with all this minutia. Buy the damn great companies and focus all your energy on just finding those."

Like I said, I would be a lot wealthier and a lot less stressed.

However, thinking back to the concept of optimism, Martin's advice could be applied to the economy and society overall.

Across the past few centuries, if you had taken the bet that humanity would improve – less poverty, less death and war, less disease and hunger, etc. – you would be correct... Especially across the past 50-plus years.

Of course, there are geographies and specific times when this isn't the case, but overall—and especially in the developed world—it has been overwhelmingly true.

This brings me back to today...

I've previously published my thoughts on COVID-19 and continue to hold those views, mainly that the virus is in the process of burning its way out and that we may arrive at low death counts soon—perhaps even soon enough to render a vaccine unnecessary.

However, even if I'm wrong, we know that the virus will eventually be solved. There's zero doubt about that. It's just a matter of time before we win.

The economy is the same. The recent third-quarter gross domestic product ("GDP") numbers in the US were strong—the 33.1% annualized sequential growth figure is the figure we hear the most.

But what I find most interesting is that the US economy was only 3.5% smaller in terms of GDP than it was in the fourth quarter of 2019. Think about that for a second. Despite everything that has happened since then, the economy was only 3.5% smaller. That's amazing.

Again, my views have been constructive. I believe we've now entered four to six quarters of global synchronized GDP growth unlike anything seen since World War II.

It's physics. Businesses that were closed – by government mandate – will open. Not all of them will survive, but a large percentage will go from closed to open. That's big growth.

Throw on the most massive fiscal and monetary stimulus we've ever seen, and that's a good thing for economic growth. Economic growth is good for stocks... and there's zero doubt about this growth. Again, it's just physics... and again, we win.

The last of the big issues weighing on us all is politics. It's also a topic that I haven't expressed an opinion on.

The only thing I'll say is that there have been many times when the US (and the world) has been fractured and violent... Even much more so than today.

Despite all those times, we've found our way through and pushed forward to even greater success for mankind—less hunger, poverty, war, etc.

Nothing has happened to lead me to believe that isn't still the case, which means the best advice I would have for 21-year-old me is: "Bet on optimism, and you will ultimately win. "

Market Wizard’s Wisdom

The Stone Hard Investor

One of the greatest blessings in my life was the opportunity to attend the Wharton School of Business at the University of Pennsylvania for my undergraduate degree.

Many of you might be familiar with this institution, but for those of you who are not, it is a business and finance focused undergraduate college at the venerable University of Pennsylvania.

While it is well known for its graduate MBA program, its undergraduate program is far and away the best in the world.

Imagine a school where a healthy portion of students (a third?) made the decision that they wanted to do finance at the age of 17. It is literally the University of Alabama football program but for stocks!

Again, it was a blessing to be able to go there and one of the benefits was being introduced to some of the famous – and very successful – alumni.

One of those alumni is the hedge fund pioneer Michael Steinhardt. (“Steinhardt” means “Stone Hard” in German.)

While Steinhardt is not as well known as his contemporaries like George Soros or Julian Robertson, he was as successful.

After graduating from Wharton undergrad in 1960, he started his career at legendary broker firm Loeb, Rhoades & Co. Seven years later he would start his hedge fund that would become Steinhardt Partners.

Between 1967 and 1995, Steinhardt partners averaged an annual return of +24.5% for investors. This is one of the greatest twenty track records in the business.

He also has been active as a philanthropist and was one of the founders of the Taglit-Birthright Israel, which has sent almost 1 million young Jews to Israel as a rite of passage.

I have had the honor of meeting Michael several times and have also collaborated with his son David many years ago.

As one of the seminal hedge fund “Money Masters”, he has some great wisdom acquired over the years.

Michael will celebrate his 85^th birthday on Sunday and in his honor, we wanted to share some of his best insights. Enjoy!

This is one my favorite quotes.

Many investors wait too long to make a trade or investment. They are waiting for the “perfect” moment where they have all the information out there to confirm the idea.

The reality, though, is the best investments are made by having powerful insights on imperfect information.

Perfection is often the enemy of success.

The key word here is “investments.”

My view is that many trading strategies make sense with smaller amounts looking to take advantage of the math of a larger population over a process.

For INVESTING, though, some level of “concentration” makes sense.

We say “concentration” in quotes because the consensus is that you need 40 or 50 investments to be diversified.

This has been proven incorrect over and over, yet this perception persists.

The reality is you only need about a dozen or even less.

Doing the work and making big bets is the way to truly grow your wealth.

Michael was a diehard fundamental investor but also understood that the path of stock prices didn’t always match up with those fundamentals.

To optimize your outcome – and to be a lot less frustrated – it is important to understand the market expectations.

These may or may not change your actions but understanding them is key to your eventual success.

THIS quote might be one of our favorites of ALL TIME!

We always explain that the BEST investors have a remarkable combination of courage of conviction and willingness to completely and totally change their minds when faced with evidence.

This is a hard combination to achieve. Few are able to do it.

Just like few are able to accomplish the kinds of investment returns that Michael saw over his career…

We hope that you’ve enjoyed this week’s issue of HX Weekly…

Do you have any thoughts, questions, or feedback? Tell us more in the comment section or at [email protected].