Same Process. Different Outcomes.
Every stock enters the portfolio with similar expectations and exits with dissimilar outcomes.
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Berry Gordy had worked on the Ford assembly line before he started Motown Records. He always respected the quality control and consistency of the Ford production line, so he built his record label the same way.
Every act went through the identical process. Songwriting teams cranked out material like it was inventory. Artists got the same choreography lessons, the same etiquette training, the same polish. And every Friday, the whole staff sat down for a "quality control" meeting and voted on which songs were good enough to release.
The bar was simple. A new song had to be able to stand next to the top five selling singles in the country that week. If it couldn't, it went back in the drawer.
One system. One filter. Applied to every artist on the roster, without exception.
In 1964, that system produced a song called "Where Did Our Love Go." They brought it to the Marvelettes first. They were Motown's biggest girl group at the time, the one who'd already given the label its first-ever number one hit. The group turned it down.
Motown then took the song to a group called the Supremes. Internally they were called "the no-hit Supremes." But guess what? It became their first number one single. Then their second. Then their third. By 1966, the Supremes had twelve number one hits, more than any act in history except the Beatles at the time.
For three years the Supremes could do no wrong. The lucky break compounded. Everything went there way. They were the equivalent of a 100-bagger in three years. Everything went right.
For the Marvelletes, they kept producing respectable work, but it wasn’t good enough to keep them on the top of the charts. They simply faded away like an average business does with average returns on capital. They were like a stock that doubles quickly and then slowly drifts lower over the next five years.
The Marvelletes and the Supremes had the same songwriters. Same quality control meetings. Same filter applied the same week. Two groups sitting in the same building. One group heard a hit and passed. The other took the leftovers and built a dozen hits on top of them.
It wasn't a different system that made the Supremes. It was the same system that had already produced a star somewhere else, and then simply didn't do it again in the same way, for the same people, the second time.
Stock picking has the same quiet cruelty to it.
I’ve been a stock picker for over 20 years, and it still amazes me how a basket of asymmetric opportunities that are uncorrelated but filtered through a similar mental model can have completely different outcomes. Some companies in the portfolio make winning look easy, while others make winning look hard.
The winners are exhilarating. You buy a position and it’s like the market gods immediately bless the company. The stock never falls below your cost basis. The management executes. Earnings beat expectations. Everything imaginable and unimaginable catalyzes the business and the story. An embarrassment of riches rains upon your portfolio. Everything goes right.
The losers are confounding. The setup looks identical to the winner, but the market gods curse the company. The business stubs it’s toe the first quarter you own it. Management fumbles the earnings call. Non-cash charges make the bottom line look even worse. External threats emerge. What looked cheap, now looks expensive. Everything goes wrong.
You know what is fascinating and maddening?
Every stock enters the portfolio with similar expectations and exits with dissimilar outcomes.
What happened to the Supremes after their multi-hit run?
Gordy became romantically involved with a young talented artist named Diana Ross. He inserted her into the group, and the act became "Diana Ross & the Supremes". It didn’t go well. Conflict soon erupted.
Three years later Diana Ross left the Supremes and became focused on her solo career. Over the next 15-years she would produce twelve top 10 singles and sell 100 million records worldwide. The Supreme’s followed the same pattern as the Marvellettes. They kept performing and producing respectable work but no one cared anymore. They faded into the history books.
It’s the same for all winning stocks. They all have different shelf lives. Most will win for months or quarters. A few will win for 5 years. Very few will win for decades.
Finding the winners is 10% of stock picking. Holding them the correct duration is the other 90%.
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