One of the most important things I’ve learned in my years as an investor is this 👉 If you are not willing to accept periods of short-term underperformance, you will never have the chance to achieve long-term outperformance. It sounds simple, but in practice it’s extremely difficult.
Most investors – whether private or professional – constantly compare themselves to the market. They ask: “Am I beating the S&P 500 today? This quarter? This year?” That mindset often leads to tracking the index as closely as possible, because the fear of underperforming in the short term outweighs the possibility of doing better over the long run.
But here’s the paradox: If you construct your portfolio in a way that makes sure you never underperform the market, then you also ensure that you will never outperform it. You’ve locked yourself into mediocrity. And if you are too focused on short term performance you end up making short term decisions.
My focus is on companies that balance growth and profitability. The reason is simple: these are the two fundamental levers every CEO must pull. How much to grow, and how much to profit. Managing one without the other is not sustainable, but managing both — in the right proportion for that company creates real value over time.
Now, this balance looks very different depending on the type of company:
👉 $MSFT (Microsoft) is a “Steady and High” case with moderate growth but exceptional margins.
👉 $NVDA (NVIDIA Corporation) is an “Increasingly Fast” case where explosive growth is paired with surprisingly high profitability.
👉 $LLY (Eli Lilly & Co) is a “Recovering” case, bouncing back from a flat year into strong growth while keeping healthy margins.
What all three have in common is balance. And that balance isn’t always visible to the market in the short term.
Sometimes investors get distracted by valuation multiples, or by quarterly noise, or by hype cycles. But if you zoom out and focus on the trajectory of growth and profitability over the coming 12–24 months, a different picture emerges.
That’s why valuation is not the first filter in my process. High-growth, improving companies are very hard to “value correctly” in the traditional sense in my opinion. Whether a P/E of 25, 50, 100, or even 200 is “too high” depends entirely on how fast growth and margins compound. And as I’ve written before, those numbers can normalize very quickly if the fundamentals deliver. At the same time a company can continue to trade at high multiples for a longer period of time before eventually correcting.
👉 This is where short-term underperformance often creeps in. The market is always shifting and moving like the ocean, in different waves. A stock may look expensive and fall out of favor for a few months, a sector may take a temporary pause while the rest of the market continues upwards. Or a company may reinvest heavily, compressing margins in the near term. All scenarios can cause a portfolio like mine to lag the benchmark temporarily.
But that temporary lag is not a sign of weakness, it’s the cost of staying disciplined to a strategy that has the potential to outperform in the long run.
The way I handle this risk is through balance at the portfolio level.
👉 Every company starts with equal weight.
👉 Rebalancing ensures that no single winner grows too large and turns into a hidden risk.
👉 And diversification across categories (Steady and High, Increasingly Fast, Recovering) means the portfolio isn’t overly dependent on one type of outcome.
So when underperformance happens… and it does, I don’t see it as a failure. I see it as the natural byproduct of running a differentiated strategy. One that doesn’t chase the index, but instead looks for companies with the right growth-profitability mix to generate long-term returns.
If you want the safety of always being “average,” you can buy the market. But if you want the possibility of being better than average, you have to be comfortable sometimes being worse than average.
That’s the reality of investing, and it’s why I accept short-term underperformance as the ticket to long-term outperformance.
Happy investing everyone!
Disclaimer: This is in no way investment advice to buy, sell or hold any specific positions. You should always make your own investment decisions. Investing bears certain risks and puts your capital at risk. Historical and backtested results are in no way equal to future returns. Future returns can vary significantly from historical and backtested results. Backtested results are not an indication for potential future returns.... Show More
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Fri Jan 23 2026 07:52:08 GMT+0000 (Coordinated Universal Time)
