HX Weekly: May 12 - May 15, 2025

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

So, what's HX Weekly all about?

Well, each Friday, we'll 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!

I: Thoughts on the Market – The Simple Rule That’s Hard to Follow

As the market rally has set in this week, we found ourselves doing something that we hadn’t done in months.

What was that you might ask?

Well, we actually thought about, analyzed and were excited to discuss, stocks!

We know that sound’s crazy coming from an investing newsletter.

But when you think about it, we’ve all been so busy focusing on the market in general (tariffs, recession, inflation, Powell vs. Trump, etc.) that individual stocks kind of got lost in the shuffle.

And then this week, as we were trying to make an investment on a stock whose price was plummeting rapidly, we felt a familiar sensation.

That sensation was fear. Fear of buying this stock and then the price continuing to drop and that we’d get burned on a bad entry price.

So, after another sip of coffee, we recalled perhaps the most important rule in investing, “buy low, sell high.”

Sounds simple, right? But in real life, it’s not that easy. Sometimes the easiest advice is the hardest to follow — especially when it comes to trading.

As you’ve probably noticed, at HX Research, we often focus on how human behavior affects trading. And one thing we’ve found is that our brains aren’t always wired to make smart decisions with money. We tend to overreact to bad news and fear losing more than we enjoy gaining.

Here’s why that matters.

When a stock’s price is falling, many people panic. Even if the stock is still strong overall, our natural fear kicks in. It feels risky to buy something that’s dropping.

But that’s often the best time to buy — when prices are low but the long-term outlook is still good.

Our brains evolved to keep us safe from danger. Long ago, it was more important to avoid being eaten by a wild animal than to enjoy a tasty meal. That’s why we still feel fear much more strongly than excitement — even in modern life.

So, buying low is hard. But selling high? That’s even harder.

When a stock goes up, it feels good. We start to think it will keep rising. We don’t want to miss out on more gains, especially if we see others making money. That fear of missing out — or “FOMO” — makes it tough to sell, even when it’s the smart move.

At HX Research, our approach is to look for strong stocks that are in long-term uptrends but have pulled back in the short term. That’s we want to buy — when others are nervous but we see value.

Still, even with a plan, emotions can get in the way. The trick is learning to stick to the strategy and not let fear or greed take over.

So, remember, “buy low, sell high” may be simple to say — but it takes practice, patience, and the right mindset to do it well.

We’re proud to say, that we got over our nerves and pressed the buy button on that stock.

II: HX Daily Redux – The Past Predicts the Future

Today, we’ll revisit an HX Daily post from October 2024 titled "The Past Predicts the Future.”

We though this piece would fit in nicely with our theme this week of getting back to basics and discussing stocks instead of the market. Enjoy!

"Past performance is not indicative of future results."

If you've ever read any of the disclaimers or legal statements on just about any investment advice, you've heard this line.

This statement is boilerplate. It's typically used when describing investment strategies and mutual funds.

In theory, this makes a lot of sense: Just because a fund manager or company performed a certain way in the past doesn't necessarily mean they will do so in the future. The world will change, and the results will also change.

But does this idea make much sense?

When companies are in a strong strategic and competitive position—especially if they're in long-term growth industries—good performance is a great predictor of future good performance.

When discussing picking stocks, we often discuss picking "winners."

These are companies that have consistently shown high earnings growth and the ability to outperform investor expectations, which they often continue to do. This may reflect their underlying positioning, industry, or management teams' execution.

Often – and ideally – it's reflective of all these factors.

While it seems prudent to issue a disclaimer that the future may not look like the past, significant trends, at least the ones that can make you the most money, tend to last for a long time.

It's better to say that while past performance is not a guarantee of future performance, it can often be a good predictor. One of the best investment strategies is to go out and discover where this is true.

When examining companies, it's crucial to deconstruct why they have performed so well in the past.

One of the biggest drivers of financial results is economic sensitivity. Most companies have some sensitivity to the economy. A rising tide does raise all ships, and a recession is a challenging environment for most businesses to grow and beat expectations.

When considering a company's track record, you first must examine its sustainability.

Mature industries—like manufacturing and retail—tend to be more economically sensitive. For instance, when steel demand increases, the economy tends to drive it.

These industries can experience great periods of performance, but you're better off buying stocks in this category when they are doing horribly rather than fantastically.

Other companies in growth areas – think of the Internet or pharmaceuticals – have fabulous long-term trends.

One of our favorite examples is e-commerce.

In the second quarter of 2021, e-commerce sales made up 14% of overall retail sales in the U.S. – a big jump from the 11% they made up in 2019.

By comparison, e-commerce sales in China made up 25% of all retail sales in 2020, up from 21% the prior year.

Are there that many fundamental differences between the U.S. and China that make these numbers so different?

The truth is that the Chinese retail sector was much less developed than that of the U.S. However, as new retailers rolled out, they built out in the most efficient manner—online.

Besides this, we don't think there are any fundamental differences between the retail sectors. We also believe that e-commerce in the U.S. will eventually make up a much larger percentage of commerce... perhaps even more than 50%.

This is an example of a long-term trend that will continue for decades... where you can find the kinds of winners that can produce huge returns.

Think of it this way. Even if the U.S. only reaches Chinese levels of e-commerce adoption, it would double the current levels.

If we're right about 50% adoption, that would be 300%-plus growth from current levels. This will take time, but this giant growth wave is akin to the move to electrification or the automobile.

Although we have already seen incredible past performance in this trend – consider that Amazon (AMZN) is up more than 300% over the past five years, tripling the return of the broad S&P 500 Index – it's also a great predictor of future performance.

If you focus on proven winners from an industry and management perspective, you're in a great position to make significant returns.

III: Market Wizard’s Wisdom - Walter Schloss

In continuing with our “back to basics” theme, we thought it would be wise to revisit a post from August 2024 honoring the wisdom of legendary investor Walter Schloss. Enjoy!

We have been an active professional investor on Wall Street for over three decades. Our interest in investing began even earlier.

One of my very first focuses as a young investor was to learn from the great investors of the past.

Investing is a unique endeavor that provides us with excellent access to the wisdom of these investors from ten years ago or a hundred years ago. It is also unique because much of that wisdom is as helpful today as it was then.

In the past few weeks, we have discussed modern investors (Phillipe Laffont) and older investors (Jesse Livermore and A.W. Jones).

Today, we share the wisdom of a value investing legend – Walter Schloss.

Many of you likely have not heard of Schloss before. He began his career in 1934 and was an early student of value-investing legend Benjamin Graham. Eventually, he even went on to work for Graham.

In the mid-1950s, he left Graham and founded his own company. Over the next four and a half decades, he compounded at over a 15% annual return—well above the rate of the S&P 500.

He closed his fund in 2000 and died at 95 in 2012.

Here are some of his insights on investing….

We hear this insight from many of our guests on the HX Podcast.

They emphasize figuring out what kind of investment style is best for you.

Some are comfortable with active trading and prefer it. Others are terrible at it and will destroy much value.

Some can hold through volatility and focus on the long term, while this is more difficult for others.

Be sure to figure out which type of investor you are so you don't get caught in the middle.

We have a helpful exercise with this insight.

The next time you feel either one of these emotions strongly – fear or greed – take a step back and think about taking the OPPOSITE action.

If you are fearful and worried about losing money, stop and think about what it would take you to buy into the situation.

If you feel like you can do nothing wrong, consider how it would feel to sell some instead and what the downside could be.

This seems obvious, but it is one of the most challenging aspects for new investors.

Many enter the markets, take a position, and then get frustrated when they don't make money quickly.

Remember that almost every strategy, even trading strategies, takes time to pay off.

Be sure to know how long your strategy should take to play out and BE PATIENT.

This is a subtle and essential insight.

In our long-term investing, we consider buying either GROWTH or ASSETS. We prefer to buy both.

GROWTH happens in earnings and can fluctuate over time.

ASSETS are enduring, and you can sleep much better at night if you own them.

When considering a company for a long-term investment, ask yourself if it has durable assets.

Something that will continue to hold real value regardless of the economic cycle.

If it does, that might make an excellent investment.

Again – we prefer to find BOTH, but given the choice, we will go with the ASSET.

This was one that my old partner Whitney Tilson used to talk about.

We both have had many times in our careers where we identified awesome growth companies but sold too soon.

A stock that goes up tenfold can change your investing future.

Remember, though, that for a stock to go up ten-fold, it must first double, triple, quadruple, etc.

Again – BE PATIENT and let your winners run.

We encourage you to look up more of Walter Schloss's wisdom and take advantage of his enduring insights!

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