| Editor's note: After telling readers to short the market 11 days before Black Monday in 1987 – and nearly calling the crash down to the minute – our colleague Mason Sexton was deemed an oracle by CNN and Time magazine. Then, something strange happened: Mason disappeared from the public eye. For the first time in 30 years, he's coming forward with an ominous new market forecast. In today's essay, he explains his approach to investing...
Wait for the Slow PitchBy Mason Sexton  In the summer of 1896, Italian economist Vilfredo Pareto noticed something odd...
Pareto was an avid gardener. And he observed that a relatively small number of his peapods were producing an outsized proportion of the crop yield. He noticed the same thing with his fruit-bearing trees. A small percentage of the trees were producing an overwhelming majority of the harvest. Upon closer inspection, he discovered that approximately 80% of the crop yield was being generated by only 20% of the plants. This was the beginning of what we know today as the "Pareto Principle," or the "80/20 rule." And we can find it everywhere... - Pareto found that 20% of the Italian population owned 80% of the land.
- In business, 20% of salespeople tend to produce 80% of sales.
- Eighty percent of charitable donations come from only 20% of those who donate.
- Microsoft (MSFT) once reported 80% of system crashes were fixed by addressing 20% of system bugs.
- In 1992, the United Nations reported that 20% of the global population owned 82.7% of the wealth.
- Even in the Amazon Rain Forest, it is estimated that 20% of the trees provide approximately 80% of the shade cover.
It was a remarkable finding, and it has shaped economic thought and business practices ever since. And for us, as investors, it has profound implications... What we will find is that approximately 80% of our returns will be generated by 20% of our holdings. And it is this seemingly simple observation that has created some of the greatest fortunes in history. Since 1984, I have made a career publishing research for my institutional clients. I won't name names, but I can say that two of my clients were two of the top 10 hedge funds last year. Another is a self-made billionaire. And in that time, I have discovered something important. It is something that very few everyday investors understand. For almost every "legendary" investor we can think of, we will find that the great majority of their success was generated from a very small minority of their trades. Warren Buffett, for instance, is famous for a concentrated portfolio. Today, just five stocks – Apple (AAPL), Bank of America (BAC), American Express (AXP), Coca-Cola (KO), and Chevron (CVX) – make up nearly 75% of Berkshire's portfolio. George Soros is reported to have made more than $1 billion in 1992 (approximately $2.1 billion adjusted for inflation today) by "breaking the Bank of England" and shorting the pound. To reference Buffett again, the "secret" is that you don't have to swing at every pitch: The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot. And if people are yelling, 'Swing, you bum!' ignore them. It is an astonishingly simple strategy, yet few investors follow it. Many investors believe they must "load up" with dozens of stocks in the "hottest" sectors like tech, crypto, or whatever they hear being discussed on CNBC. But if our goal is to see great returns with our investments – and it should be – there is a much easier method... As mentioned above, I have provided institutional research for my clients for much of my career. I specialize in spotting important trend changes, sometimes down to the day. I asked my analysts to perform an internal review of our recommendations for 2022. And we were astonished by the results. Had you simply gone long or short according to our signals, you would have realized a 38% growth of your portfolio in 2022. Does that mean every trade was a winner? Of course not. Nobody is perfect. But what we found is that 79% of our trades were winners. The remaining 21% were small losses (our maximum loss on a single trade last year was -4.8%.) If those figures sound familiar, they should. It's Pareto's Principle once again. And keep in mind, this was during the worst year for stocks in over a decade. And it was a year when many investors saw the majority of their portfolio vanish as the "everything bubble" burst. So, how did we do it? I'd like to show you. You see, I believe we are not through the worst of this bearish cycle. I believe there is more pain ahead for markets, the economy, and broader society. And my analysis is telling me the next downturn could kick off this summer. I believe we are entering a "new paradigm" that many investors are woefully unprepared for. Sometimes I get emotional thinking about the pain that lies ahead for most people. For the full story, please click here before midnight tonight. Regards, Mason Sexton
June 30, 2023
Editor's note: Mason became famous for his stunningly accurate market calls, which is why hedge funds pay him as much as $10,000 a month for his predictions. But what he sees coming on July 12 is unlike anything he's ever seen before. Get the facts here before this video goes offline just hours from now.
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