Portfolio Strategy: Beyond The Heat, The Process That Delivers The Prize

Discipline and a clear process are key to achieving outperformance

Executive Summary

I believe that process beats prize chasing. Everyone wants outperformance. To have, to be, to get outperformance. But when it comes to sticking to the process, that drives outperformance, people get confused.

My Inflection strategy is clear and easy to follow. I believe that the unrelenting grind of looking for companies that are on the cusp of changing to a new narrative makes for rewarding investments.

I give you clear and transparent recommendations of what to buy and what to sell, and why. Your job is to familiarize yourself with my service, so you can grow conviction that Inflection investing works, and that Deep Value Returns will deliver outperformance in 2025.

Unrelenting grind, together with curiosity and calmness, will allow you to outperform in 2025.

Process Ahead of Prize

What's it going to take to make 2025 see your portfolio outperform? Discipline, discipline, discipline.

This is something that people find easier to say than to do. Here, I'm talking about pushing through beyond the death scroll of social media. You need to have a clear plan that doesn't allow you to be distracted. Kill the noise.

The Inflection setup is very easy. You want to buy businesses where the market was largely uninterested in, but that there's a fundamental change happening that's going to dramatically change the company's prospects.

Allow me to expand this further. My preference is when the share price has seen minimal traction for several months. Investors are bored. And then, there's an earning report, where it's announced that a meaningful change is coming. But this change can vary.

For example a new CEO, or a spin-off of a business, or a new product line, or that they are cutting their way to improved profitability.

There's no concrete evidence that this change will be positive. And there's no evidence that it's going to happen in a timely fashion. But there's a bubbling opportunity that may be interesting.

Now, here's comes the grind of the Inflection investor. You need to keep an open mind and reconsider businesses that previously looked uninteresting to you too!

You have to have the curiosity, to open up the lid, and look inside. Sometimes, if you grind hard enough and open up enough lids, you get a nice little surprise, when investors aren't paying attention.

But this is not a call for action on every change.

Heroes get Zeros

I believe that the harder you grind, the more opportunities you are going to find. As a result, you have meaningfully opened up your potential opportunities. Does this mean you invest in all these businesses, that are undergoing a fundamental change? No!

You don't want to react to every news item. This is what I've been saying. Kill the noise.

You need to build up a discipline that allows some opportunities to go past you.

Recall my saying, lukewarm ideas, drive lukewarm performance. And top ideas, drive top performance.

You need to develop a very tough skin to say no to ideas that you don't truly buy into before you get involved with them. Get used to saying no a lot. And get used to not getting FOMO. So what if everyone is making money on XYZ stock? That's their problem. You need to focus on you and your portfolio.

The hero investor that is chasing every opportunity, is going to underperform in 2025.

You need to stay cool and calm, and with an open mind, that respects the fact that your job is not to call every stock market idea right, but to back the few top ideas that even when the market is plummeting down, you are not going to lose your conviction.

Practical Aspects I'm Looking For

There are two elements that matter for a business to be a rewarding investment.

• Expectations have to be muted.

• And next year's free cash flow has to be stronger than this year's.

Those are the ultimate drivers for a stock to increase in value relative to this year. Everything else we do is largely meaningless.

Of course, starting with a strong balance sheet makes the setup easier, as does having an attractive valuation. But while those elements are crucial, what's even more important is the oncoming change in the company's narrative.

Allow me to explain this further. Most businesses are average. They are not as good as people make out when things look rosy. Or as bad as people make out when things look ugly. The average business is average.

But if you buy into an average business and a new narrative unfolds, suddenly, the company goes through a period where the results look rather better than people's expectations. And this leads to re-rating.

So, you saw the potential when nobody else could see, right? And here's what you truly drives outperformance: you need to sell into strength when everyone only sees the potential.

The higher the share price climbs, the more confident and prepared you must be to address any underlying questions about the business. When buying at a low price, you don’t need perfect answers—just a general sense of prospects. But as the price rises, your conviction and insights must be sharper than anyone else’s.

So, you need to know the game you are playing? Are you here for the money or here for the ego? Because playing the game where you need to be the top 1% of players is tough. But playing the game where you need to improve yourself by 1% each day is easier, and a lot more profitable.

The Bottom Line

In 2025, I’m committed to staying disciplined, curious, and focused on the process—not the noise. My goal is simple: identify Inflection points where overlooked businesses are poised for change, and back only the best ideas with unwavering conviction.