This Is a Once-in-a-Decade Opportunity to 'Reset' Your Portfolio| By Whitney Tilson |  |
 My parents were among the first couples to meet and marry in the Peace Corps in 1962...
They were the best parents anyone could possibly wish for, but they were teachers and knew nothing about finance. I had a strong interest in business and got a great general business education at Harvard Business School. But my interest was in entrepreneurship, not investing. So much so, in fact, that when the most famous investor in the world, Berkshire Hathaway (BRK-B) CEO Warren Buffett, came to speak on campus, I didn't even go because I had no idea who he was! It wasn't until a few years after business school, when I was nearly 30 years old, that I started to take an interest in investing – for the simple reason that it was the first time in my life I had any money saved up. I wanted to invest it, so I called my college buddy Bill Ackman... He's now the world-famous billionaire manager of hedge fund Pershing Square Capital Management, but back then, he was running his first, much smaller fund, Gotham Partners. I asked for his advice and remember exactly what he told me: "Read everything Warren Buffett has ever written. You can stop there. That's all you need to know." I took his advice and was immediately hooked. Buffett's idea of trying to buy dollar bills for 50 cents immediately resonated with me because my parents knew how to squeeze a dollar until it screamed. Throughout my childhood, we rarely went out to eat, only bought used cars, and shopped for clothes at thrift stores. I continued reading everything I could by (and about) Buffett and started attending every Berkshire Hathaway annual meeting. Soon, I felt confident enough to start buying a few stocks. To my delight, most of them went up – some by a lot! I remember investing the entire $20,000 in my wife's retirement account in America Online stock in late 1997 and watching it turn into $120,000 a year later. Making $100,000 so quickly blew my mind! I soon came to believe that I was God's gift to investing. That's what making some quick money will do. (Plus, I was pretty full of myself, with my fancy Harvard degrees and all.) But in truth, I now realize that I was, as the old investing adage goes, confusing brains with a bull market. In reality, I had gotten lucky and stumbled into the last blow-off phase of the long bull market that started in 1982 and ended with the insanity of the Internet bubble 17 years later. The combination of discovering Buffett, having early success in picking stocks, and looking for a new line of work led to my decision in mid-November 1998 to launch my own hedge fund. It wasn't carefully thought out, to say the least... I was young and overconfident, so I launched my fund with hardly any of the requisite skills and experience. By all rights, I should have fallen flat on my face, lost money, and gone out of business. But the opposite happened, at least for the first dozen years. When I officially opened for business on January 1, 1999, my little fund had around $1 million in assets – undoubtedly one of the smallest in the world. Fortunately, I got off to a good start thanks to hanging onto a handful of tech stocks like AOL and Microsoft (MSFT) that I'd owned for years. 1999 was a great time to own them, as it was the last year of the blowoff of the Internet bubble. But in mid-March 2000, the bubble burst. By the time the market bottomed two and a half years later, the tech-heavy Nasdaq Composite Index had crashed by nearly 80%. By all rights, I should have gotten incinerated... As a late '90s bull market genius, I had been riding popular tech stocks like AOL, Microsoft, Dell, and Intel (INTC) for years. But just in the nick of time, I realized that these stocks were part of an enormous bubble and sold them before they took me down. To some extent, I was lucky, but I also created my own luck by working hard and becoming a learning machine, sucking up all of the knowledge and experience I could. You can only get experience in two ways: Doing things yourself, which inevitably means making mistakes (of which I made plenty), or learning from others. Trust me, the latter is far preferable! I was both lucky and smart in finding and listening to the right teachers, starting with Bill. I still remember a conversation we had in late 1999. I was boasting about how well my fund was doing, and he asked me what stocks were driving my performance. When I mentioned AOL and Dell, he asked me to explain how I valued them and why I thought they were cheap. I sputtered something about them being great companies that were growing rapidly. "Yes, I understand that," he said. "But why do you think their stocks are undervalued?" I had no answer (because there wasn't one). His questions led me to rethink all of the high-flying tech stocks I owned... I also owe a debt of gratitude to Buffett and Munger. As I mentioned earlier, Bill had told me about them a few years earlier and I had recently attended my first Berkshire Hathaway annual meeting. Their teachings – especially their warnings about the tech bubble – were slowly penetrating my thick skull. At the same time, I was also voraciously reading the classics of value investing: Ben Graham's bible, The Intelligent Investor... Seth Klarman's classic, Margin of Safety... Peter Lynch's two books, One Up on Wall Street and Beating the Street... and Joel Greenblatt's You Can Be a Stock Market Genius. The collective wisdom of these investing giants was also starting to sink in. I remember how excited I was when I discovered that Greenblatt was teaching a course on value investing at Columbia Business School in the spring of 2000. I found out when and where the class was held, showed up on the first day, and sat quietly in the back of the class. When it was over, I approached him, told him I was a big fan and had just started my own little fund a year earlier, and asked if I could sit in on the class for the rest of the semester. He frowned. "Well, I'm not supposed to do this," he said. "But if you sit in the back and don't say a word, I'll allow it." I never missed a class. Learning from a brilliant, legendary value investor at the exact time that the tech bubble was in its final blow-off phase was a transformative experience. It was the defining moment that caused me to abandon my speculative ways and become a true value investor. I still vividly remember the day the Nasdaq peaked on Friday, March 10, 2000. Berkshire Hathaway and the other value stocks in my portfolio had been getting pounded for months as every investor on Earth seemed to be selling them and plowing money into tech stocks. It was so painful and I felt like it would never end... But I also knew I owned some great companies – and their stocks were insanely cheap. In fact, some of my greatest investment ideas ever came during the dot-com crash. Take, for example, a company called Graco (GGG). This is a company that builds products that "move, measure, control, dispense, and spray a wide range of fluids." Boring, right? Probably not a company you'd expect to change the world. However, I published an article about Graco way back in 2001 titled "Three Boring Stocks to Consider." In it, I wrote that Graco had been growing its revenues consistently over time and had just used its strong free cash flow to pay down debt. It was a boring, mundane value stock that was a perfect investment during the dot-com boom and bust. Graco shares went on to rise as much as 3,093%, enough to turn a $5,000 investment into more than $150,000. In that same article, I also recommended auto parts retailer AutoZone (AZO). Anyone who bought my recommendation and held on could have made as much as 8,311%... which turns every $5,000 into more than $400,000. While investors were caught up in high-flying internet companies like Webvan, TheGlobe, and Pets.com that later crashed spectacularly, the boring ones I recommended soared, even as the Nasdaq was crashing. Right now, I know how bad things feel... If you're like most investors (myself included), your portfolio has taken a beating. The S&P 500 Index is down more than 20% year to date, its worst first six months since President Richard Nixon was in office. Meanwhile, dozens of blue-chip stocks like Tesla (TSLA), Home Depot (HD), Adobe (ADBE), Starbucks (SBUX), and Netflix (NFLX) are down at least 30% – and some more than 70%! But as I explain in a brand-new presentation, this is an incredible opportunity for investors. I've found four world-class stocks that have gotten clobbered to the point where they are now trading at a huge discount to their intrinsic value. I believe these four stocks should be the backbone of your portfolio today. I just put together a brand-new presentation to tell you everything you need to know. You can watch it (or read a transcript) right here. Regards, Whitney Tilson
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