Unlocking Investment Success: Lessons from the Market

Navigating the stock market can be challenging, as uncertainty often cloud investors’ choices. However, experienced traders often recognize that by minimizing losses and seeking high-reward opportunities, they can achieve long-term gains. Billionaire investor Paul Tudor Jones encapsulated this strategy succinctly with his risk/reward ratio:

PTJ on his 5/1 risk/reward protocol:

“Five to one means I’m risking one dollar to make five. What five to one does is allow you to have a hit ratio of 20%. I can actually be a complete imbecile. I can be wrong 80% of the time, and I’m still not going to lose.” ~Paul Tudor Jones

This insight emphasizes the importance of identifying a few significant successes while swiftly cutting losses.

To Discover Tomorrow’s Winners, Analyze the Past

Every investor aspires to find standout stocks. Yet, many struggle because they neglect lessons from history. While future movements remain uncertain, past trends often offer valuable insights. Renowned investor William O’Neil maintained a “Model Book” that recorded successful past performers, reflecting the idea expressed by the legendary Jesse Livermore:

“There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.” ~Jesse Livermore

A Closer Look at MicroStrategy’s Winning Trade

As the head of Zacks’ “Technology Innovators” premium service, I want to share my top trade from 2024. On September 23^rd, I recommended buying MicroStrategy (MSTR) at $149.86. By November 21^st, we sold it at $535.63, resulting in a remarkable gain of 257.42%.

Image Source: Zacks Investment Research

This narrative is not merely about celebrating gains; it serves to illustrate the rationale behind a successful trade that other investors can replicate.

Understanding MicroStrategy’s Strategy

Michael Saylor, the founder and former CEO of MicroStrategy, has long warned about the effects of a monetary system that grows around 7% annually, while inflation hovers near 2%. In late 2020, he took decisive action by implementing “The Bitcoin Standard.”

“What we (MSTR) were doing was that we’re inverting the balance sheet such that we’re floating on a Bitcoin sail, on a crypto sail if you will, and as the liquidity and the monetary system get pumped up, we want it to float, rather than sink, on that pool of liquidity.” ~Michael Saylor

Takeaway: Focus on identifying innovative disruptors in rapidly expanding sectors.

Image Source: FactSet

Key Factors Driving MSTR’s Growth

For years, both Bitcoin and MicroStrategy faced scrutiny. However, recent developments have shifted the narrative positively. Important catalysts for growth included:

• Real-world use: Citizens in nations like Argentina and Turkey increasingly use Bitcoin to protect against hyperinflation. Although Bitcoin’s dollar value had decreased, it was rising against local currencies, indicating genuine global adoption.
• Institutional Adoption: Major asset managers entered the cryptocurrency space with ETFs, including Blackrock (BLK) debuting the iShares Bitcoin ETF (IBIT) and Fidelity’s Fidelity Wise Origin BTC ETF (FBTC) beginning trading.
• Regulatory Clarity: Companies like Coinbase (COIN) had notable legal wins against the Securities and Exchange Commission (SEC).

Takeaway: Seek industry trends and positive developments that can enhance stock value.

Technical Outlook and Relative Strength of MSTR