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 or timeless insights.

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 Market

Our Conversation with Jamari Valentine

In last week’s issue we talked about how much we enjoyed reader questions.

In this week’s issue, we are going to tackle another reader question, but this one is a little different.

The other day I was in a longish Uber ride in Baltimore while talking to one of my colleagues here at HX Research.

After I finished my call, the young man driving asked me if I was a writer.

I said to him, “Yes, I write an investment newsletter. I have spent thirty years on Wall Street and a few years ago decided to share that knowledge with others.”

He quickly perked up and proceeded to tell me about his own investments. He said he didn’t have much but he tried to take at least 10% of what he made every week and put it into his Robin Hood account.

After he walked me through it all, he then asked me the question that every professional money manager has heard a hundred times…

“What do you think I should be doing with my money?”

If you have ever been in the money management business, you have heard this question many times.

It could be at a cocktail party, it could be a school event, it could be at a family reunion, or it could be from your Uber driver.

Personally, I take this question very seriously.

It is also daunting because the reality is that I would only have five to ten minutes to give him my thoughts.

SO – what did I tell him in the (as it turns out) eight minutes we had left in the drive?

First, I told him that I am not a registered investment advisor and can’t give him individual advice.

Anyway, I wanted to give him something more useful than just a couple of stock picks.

Give a man a fish and he eats for a day. Teach him to fish and he can eat the rest of his life.

My first real piece of advice was the power of COMPOUNDING.

I said to him “You have an incredible opportunity in front of you. You are quite young and you can take advantage of the many years ahead of you to grow wealth. In fact, you have a unique advantage!”

There are many great charts out there showing the power of compounding but one of my favorites is this one:

This shows an example where a woman named “Barbara” begins investing when she is 19 years and invests for the next 10 years. “Ron” begins when he is 28 years old and continues for the next 37 years until he is 65 years old.

Both get a +10% annual return.

Guess who has more money when they turn 65 years old?

Surprisingly, it is Barbara!

THIS is the power of time in compounding.

Now, there are lots of caveats here.

A +10% return is a lot and not achievable for most. Doesn’t mean the math isn’t powerful.

Also, what would happen if Barbara continued to invest for the next 37 years like Ron did?

The $94,000 she invested would turn into almost $1.75 million dollars!

Both people in this example started very young. Is this still relevant for older people?

ABSOLUTELY.

Especially because of my second piece of real advice – the power of GROWTH.

I said to him, “The single most powerful impact on a portfolio is finding a big winner. A single stock that goes up ten-fold can change everything.”

Here is another one of my favorite analyses…

This table shows the impact that having BIG WINNERS can have on your portfolio.

In this first scenario, it shows that if you have 10 stocks and nine of them lose half their value and ONE goes up 10x – you make a +55% return.

If the nine lose 90% of their value, you STILL make a +19% return.

Finally, if you can manage to find TWO big winners and EVERY OTHER stock goes to $0, you make an incredible +120% return on the portfolio!

Like our advice about compounding, this advice is good for anyone of any age.

So, the obvious question here is how do you find these kind of massive winners?

Well, for that, we will share with you a note we wrote back in February 2025.

Enjoy the note and have a great weekend!

After two decades of building spreadsheets and tracking dozens of valuation metrics that never moved the needle, I finally realized the only number that consistently drives stock prices higher.

Using Warren Buffett’s legendary Coca-Cola investment as a case study, this note shows why “cheap” is often a trap and why focusing on companies that can grow EPS dramatically is the shortest path to both trading opportunities and multi-bagger investing results.

HX Weekly Redux

My #1 Stock Metric

What if I told you there was only one single metric you need to know to trade stocks?

Like many novice investors, I spent a lot of time at the start of my career looking at all kinds of different stock metrics...

Building spreadsheets, analyzing company valuations, and comparing them to dozens of other metrics.

I easily spent hundreds of hours doing all this work.

And it did virtually nothing to make me money.

It took me two decades to realize this. But eventually, I figured out that there’s one — and I mean only one — metric that drives stock prices.

That metric is earnings growth. Let’s talk about it…

The Only Stock Metric That Matters

When you hear most investors talk about attractive stocks, you’ll hear them talk about the valuation of a company.

They’ll discuss the multiple of earnings or cash flow. They’ll often compare it to other companies, the multiple of the market, or the company’s history.

Then based on how cheap that multiple looks, they’ll decide whether the stock is attractive or not.

But this method is completely 100% WRONG and can cost you a ton of money.

Not once in the stock market's history has a stock gone up just because it was “cheap.” Stocks go up because they grow their earnings and cash flow.

Even Warren Buffett, the greatest value investor of all time, understands this.

Take a look at one of his most famous stock picks, The Coca-Cola Company (NYSE: KO).

Buffett bought his stake in KO back in 1988. That original $1.3 billion investment is now worth almost $25 billion!

Here’s a table showing the earnings per share (or EPS) for KO going all the way back to 1988. It also includes the valuation multiple and the dividends paid that year.

Now, let’s discuss some of these numbers.

The year Buffett bought the stock, it was trading at roughly a 16x price-to-earnings (or P/E) ratio. For comparison, the S&P 500 was trading at around a 14x P/E ratio at the time.

In other words, KO was slightly more expensive than the market.

That 16x multiple is around the long-term multiple of the stock market. While KO stock wasn’t expensive by any means, it’s hard to argue that it was cheap.

Here’s a table where we put together the growth in these metrics and tied it back to the total return of KO stock…

You can see that the stock is up almost 2,200% over the period.

The valuation multiple has expanded, with some hitting roughly 25x on last year’s earnings versus 16x back when Buffett bought it.

That is a 71% increase that drove only a small part of the returns. The real driver was the earnings!

Over the period, they’ve gone up almost 2,400% and powered the stock price higher.

If the stock hadn’t grown earnings like it has, I don’t think it would have done very well for Buffett and other investors.

It wasn’t the valuation that made KO a fantastic stock — it was the EARNINGS GROWTH.

If there’s one thing I could say to my 23-year-old self when I started my investment career, it would be “Look for the earnings growth.”

Since I don’t have a time machine, I’ll impart that advice to you. Earnings growth is the one single metric that always works.

Here’s why…

If you find a company that’s going to grow EPS from $1 to $10, then that stock is going up. It’s that simple!

As I’ll often say, it might go up now or it might go up later. It might go up a lot or it might go up a little. But I guarantee you the stock is going higher.

I’d also bet that if a company really is growing EPS that much, then the stock goes up a lot and soon.

If you use only one metric — it should be this one.

By successfully identifying companies with this kind of earnings growth, you can successfully identify great stocks.

I’m looking for strong earnings growth in both my trading and investing strategies.

In the trading strategies, I look for stocks with solid growth that have stumbled – names such as Meta Platforms (META) and Nvidia (NVDA). This presents a greater chance that they will rally.

In my investing strategies, I look to identify stocks with huge growth – think Talen Energy (TLN) and CAVA Group (CAVA). Find those, and you can find stocks that are 20-baggers like KO.

So don’t get distracted by all the worthless metrics pushed by the “smart” money.

Instead, keep it simple and focus on the growth.

Once you accept that earnings growth is the engine, the next step is adopting the mindset of the best growth investors. Phillipe Laffont shared a presentation that turns conventional wisdom on its head: he has made his fortune by buying high and selling low.

This note unpacks what that really means and why it is a practical complement to the compounding and earnings-growth principles in the first two articles.

Market Wizard’s Wisdom

Buying High and Selling Low

IIn our thirty-year career as professional investors, we have been lucky to meet many talented investors.

One of the most talented is my old friend Phillipe Laffont.

Phillipe founded Coatue Capital Management in 1999. He is an alumnus of famed Tiger Management and was one of the original “Tiger Cubs.”  Today, Coatue has grown into a diversified asset management company with over $40 billion in assets under management.

Phillipe and I got to know each other back when he formed Coatue, as I was at a similar fund at the time. We would sometimes talk about telecommunications and media stocks.

It has been incredible to see him build Coatue into one of history's most successful GROWTH managers.

He truly has a handle on identifying significant trends and monetizing them.

Another great thing about Phillipe is that he often shares his presentations to his investors with the public.

This is a rare opportunity to get insight into the process of one of the world’s most successful investors.

Recently, his firm posted a video of a presentation he gave at his firm’s annual East Meets West conference.

You can access a video of the full presentation and the slides here.

He kicked off this year’s conference with this contrarian statement…

“I want you to know that I have done well for 25 years by buying high and selling low. When you buy high, you buy the winners, and you let the market give you some direction and you buy companies that are working.”

He also noted that selling low helps you “get rid of some losers.”

This is the opposite of the traditional "buy low, sell high."

What does Phillipe mean by his statement that flies in the face of conventional wisdom?

We have written about growth investing and listening to the stock market's signals. Phillipe’s statement embodies both best practices.

When buying growth stocks, you are looking for stocks that can not only go up +100% but potentially +300%, +500%, +1000% or more.

A straightforward piece of math we like to share is to remember that for a stock to go up +500%, it must go up +100% first. This is a simple fact, but too many investors forget it.

They look at a stock that has doubled and think they missed it.

Many investors start their process by looking for the stocks that are down the most. The best investors I know look for the ones that are up the most and figure out if there is more upside.

Phillipe understands these principles well and has used them to become a billionaire.

He also understands the key to managing your losses.

His statement acknowledges that even if you think you are right – and may eventually be so – very often, a stock that is down is giving you a signal that you are wrong.

Instead of being a negative, it is helping you understand where you are making mistakes.

The key to successful GROWTH investing is cutting those losses while allowing your growth winners to realize their full potential.

We wanted to focus on this considerable picture insight, but we highly encourage you to watch the presentation and read the slides.

He analyzes AI and its impact on the markets intensively. He also provides insightful commentary on the software sector, the state of the private markets, and his core macro outlook.

While we don’t agree with all of it, we do agree with most of it and have HUGE respect for his insights.

Please do yourself a favor and go through this and his past presentations.

You can learn how buying high and selling low can make you a better investor!

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].