There's a lot for investors to learn -- and not just about markets, industries, and companies they follow, but also about themselves. Sometimes we can be our own worst enemies in investing, whether that's allowing our emotions to get in the way of a great investment or letting personal finance mistakes limit our gains.
After a decade of writing for The Motley Fool and learning from our talented contributors and analysts, there are three moneymaking skills I'm going to work on in 2020, and I think most investors would benefit from them too.
Image source: Getty Images.
1. Don't be afraid of growth
How do you price a stock that might grow 20% every year for the next 20 years? Is a P/E ratio of 50 crazy? Is a price-to-sales ratio of 10 or 20 too high?
When it comes to long-term growth stocks, the answer is that there's often not a price that's too high. If a company has $100 million in sales and grows 20% for 20 years it will end up with $3.83 billion in sales, or more than 38 times what it started with. Even a few years of double-digit growth and suddenly a P/E ratio of 50 seems like a steal for some growth stocks.
I want to highlight four stocks that fall into this "crazy" valuation growth stock category that I'm going to look at differently in 2020: Beyond Meat (BYND 1.81%), Lyft (LYFT 1.44%), Uber Technologies (UBER 2.11%), and Slack Technologies (WORK +0.00%). Each trades at a multiple of sales, even as high as 19.3 times sales for Slack, and you'll notice that P/E ratios don't exist because none of these companies posted a profit over the past year.
BYND PS Ratio data by YCharts
Now, think about how transformational these companies could be as they grow. Despite all of their challenges, Uber and Lyft could change the way billions of people travel, Slack is changing the way millions of people work every day, and Beyond Meat could literally change how the world eats. Each company may have decades of growth ahead, and if they keep making progress in their respective markets, they could be huge winners for your portfolio.
Market-beating gains aren't driven by bargain-basement shopping, it's done by betting on companies like Netflix (NFLX 0.11%), Amazon (AMZN +1.61%), and LendingTree (TREE 4.24%) -- the disruptors that change the way consumers and businesses operate. Those three stocks are up 4,370%, 3,210%, and 1,360% over the past decade despite being considered "expensive" by many measures at the beginning of the decade. Don't be afraid of growth stocks in 2020 -- sometimes investors just have to hang on for the ride.
2. Trust your instincts
Sometimes the best investing ideas are right in front of our faces. For example, Apple (AAPL +1.50%) released the first iPhone in 2007, and within a year or two it was a global phenomenon. By 2008 or 2009, it seemed like you may have missed the investing boat on Apple. But if you had waited five years after the iPhone launch -- until 2012 -- to jump into Apple stock, it still wouldn't have been too late. In fact, Apple stock has more than doubled the return of the S&P 500 since 2012.
AAPL Total Return Price data by YCharts
Another stock that seemed a little too obvious only a few years ago is Disney (DIS 1.20%) with its multiple Marvel and Star Wars blockbusters year after year. But over the last decade, it's returned 415%, compared to 257% for the S&P 500.
Similar stories could be told for Amazon, Google, Facebook, and other services we use every day. They're right in front of our faces every day, and they've crushed the market. Sometimes the obvious pick is the right pick.
3. Save enough cash for a rainy day
Buying and holding stocks for long periods of time, as we recommend at The Motley Fool, doesn't just mean picking the right stocks -- it also means not selling them. And the worst time to sell is when you're forced to.
That's why the best thing you can do for your portfolio is to have enough savings for a rainy day if life changes or a large expense like a home repair or an unplanned medical bill comes along. Financial advisers typically say people should have six months of expenses saved, which is a tall task for most of us. But it's a great goal, and one my family is working toward in 2020 after a number of life changes depleted our savings (marriage, house, kids).
We don't know when rainy days are going to come, so having some cash set aside will not only allow you to sleep better at night, it'll help you avoid panic selling when cash runs low. Saving is a moneymaking skill most people can probably get better at in 2020.
Have a smarter, happier, and richer new year
Investing (and saving) a little bit smarter can be the difference between building a great nest egg for your future and constantly feeling behind on the bills that never stop coming. With a little extra saving and a little more long-term view on investments, we can all get off on a great start to investing in the 2020s.
