2020 Stock Picks


Instead of picking 3 new stocks last January, I recommended doubling down on my 2018 selections. Before I discuss 2020 let’s review how that strategy fared. 

The stock market grew 29% in 2019 (as measured by the S&P 500). So anything less than 30% growth for the year would have been unspectacular, according to the benchmark I’ve been accountable to on this site. 

Visa cleared that bar with 42% growth, Amazon lagged with 23%, and Alibaba nearly doubled the market’s return with 55% growth. If you invested evenly across these 3 stocks, you would have “beat the market” by 11%, with a one-year return of 40%. 

By now you’ve probably heard enough jokes about ‘20/20 vision’ 😉 but here are my recommendations for beating the market this year:

1. Keep what works (Amazon, Visa & Alibaba) 

I wish I could offer new ideas whenever asked, but I’ve always believed in making large bets on a relatively small number of winners. For most of my time investing I’ve targeted just 1 or 2 new stocks each year, and spent the entire 12 months buying the ‘stock of the year’ at varied price points. There are other names I considered recommending here, but the fact is few corporations wield such impervious competitive advantages, which ultimately produces market outperformance.


2. Mastercard (58% growth in 2019) 

Like Visa, Mastercard operates a virtual monopoly in the payment space and has been an exceptional stock for more than a decade. The business models of Visa and Mastercard are synonymous in that they own the ‘rails’ of payment infrastructure relied on by merchants, without having to deal with lending credit to consumers. (Note: this is critically different from both Discover and American Express).

While Mastercard may look expensive after a banner year in 2019, the company has plenty of growth drivers including international expansion and innovations in B2B transactions. We’ve yet to see any new payment solutions in the developed world gain notable traction without Visa or Mastercard. In 2019, the ‘Apple Card’ launched in partnership with Mastercard, not in disruption of it. Some may be surprised to know that Mastercard’s stock has outperformed Apple on a 3-year basis.

Screenshot 2020-01-15 at 3.07.58 PM

3. AirBnB (anticipated IPO in 2020)  

AirBnB has been on my radar for quite a while, and if the company’s leadership is to be trusted 2020 will finally be the year regular people like us can invest. To be transparent I have no idea how AirBnB will perform in 2020, as it’s impossible to predict what the broader market environment will be like on the day of the initial public offering. 

In 2019 the IPOs of unprofitable companies like Lyft struggled mightily, contributing to a frenzy surrounding the IPO of Zoom Video, which had already achieved profitability. I expect AirBnB to report profitable numbers when it files IPO paperwork in 2020 (though it is noticeably spending more on marketing — its “Host” ads are seemingly everywhere in my city). I also expect AirBnB to leverage its firm competitive advantages to outperform the market for the foreseeable future. 

— Jan. 16, 2020