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The secret to long-term success in investing isn’t brilliance; it’s discipline. Charlie Munger said it best: “It’s remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid instead of trying to be very intelligent.”
Every poker player and every athlete instinctively understands this. You don’t have to win every hand or make every shot. You just have to avoid the boneheaded mistakes that take you out of the game. The same rule applies to the markets. Avoiding the losers matters more than catching every winner.
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In short, winning in investing, like poker or sports, is about the quiet, unglamorous art of not being stupid. There’s a simple way to avoid making foolish investing decisions, too.
In poker, you fold a lot of hands. You might sit there round after round, letting go of tempting cards that could, just maybe, turn into something. But pros know that survival is the name of the game. Amateurs chase every hand, bleeding chips until they’re forced out. In investing, the same thing happens when people chase hot stocks at sky-high valuations, convinced they’re sitting at the table with pocket aces. They’re not. They’re just overpaying for hope.
In sports, it’s the team that makes the fewest mistakes that often wins. A football team that avoids turnovers and penalties can grind its way to victory even if it never hits a 70-yard touchdown. A baseball team that plays clean defense and doesn’t strand runners will consistently beat a flashier team that commits three errors a night. The difference between winning seasons and wasted potential is usually not brilliance, but consistency.
In investing, avoiding errors begins with discipline about valuation. Companies trading at nosebleed multiples (whether it’s 40 times earnings, eight times book value, or 20 times sales) leave no margin for error. Everything has to go right for the stock to keep climbing, and in the real world, everything rarely does. When sentiment turns or the next quarter disappoints, these high-fliers come down hard.
You can see the same principle in the Piotroski F-Score, a simple but powerful measure of fundamental health. Companies with low F-scores (weak profitability, declining cash flows, rising leverage) are the equivalent of a team on a losing streak with a tired bullpen and a shaky defense. They might look cheap, but they’re cheap for a reason. Betting on them is like buying into a struggling franchise that’s about to lose its coach. Occasionally, one will turn it around, but most will drift lower, draining your portfolio’s energy and capital.
The best investors are not those who find the next rocket ship; they’re the ones who refuse to buy the obvious losers. They fold early, stay patient, and keep their stack intact for when the odds turn favorable. They avoid companies priced for perfection or showing signs of fundamental decay. They understand that investing is less about hitting home runs and more about staying in the game long enough to compound steadily.
The market rewards survival. That’s why avoiding losers is not just a defensive tactic; it’s an offensive one. Each time you sidestep a high-multiple darling before the crash, or skip a low-F-score trap before it implodes, you gain relative strength against those who didn’t. Over decades, those small advantages add up to what Munger called a “remarkable long-term advantage.”
We can utilize the latest upgrades in Benzinga Pro to identify companies that are overvalued and have weak fundamentals. These are the stocks that we want to avoid, no matter how interesting the story might be.
Identifying low-value rankings and low F-scores enables us to pinpoint stocks that could easily become hand grenades in your portfolio.
Synopsys (NASDAQ:SNPS) has become a poster child for valuation excess in the AI-fueled software space. The company’s design automation tools are world-class, but investors have bid the stock up to more than 45 times forward earnings and over 12 times sales, levels that price in near-perfect execution for years to come. Growth has slowed into the low teens, margins are narrowing under competitive pressure from Cadence and Siemens, and free cash flow conversion has softened as R&D spending rises. With AI hype inflating every semiconductor-related name, SNPS trades as if it were a pure-play AI winner rather than a cyclical software vendor tethered to chip design cycles. The Piotroski F-score sits in the midrange, reflecting only modest balance sheet strength and limited operational momentum. It’s a solid company, but at these prices, the margin of safety has completely vanished.
Snowflake (NYSE:SNOW) is another glaring case of valuation detachment from business reality. Once the market’s favorite cloud data darling, the company still trades at more than 15 times forward sales, despite sharply decelerating revenue growth that has fallen from over 100% to barely 25%. Losses remain persistent, and management has repeatedly trimmed long-term forecasts as enterprise spending on cloud data warehousing normalizes. Free cash flow has been erratic, and stock-based compensation continues to inflate the share count, rendering “adjusted” profitability largely an accounting illusion. The fundamentals are fine for a mid-tier software firm, but not for a stock priced like a hypergrowth powerhouse. A low Piotroski F-score highlights the weak quality of earnings and poor capital discipline, resulting in investors paying a venture capital valuation for a maturing business.
Datadog (NASDAQ:DDOG) rounds out the trio as another cloud software name whose valuation reflects more fantasy than fundamentals. Trading at around 70 times forward earnings and over 17 times sales, the monitoring and observability company faces a slowdown in growth as enterprise customers consolidate tools and trim IT budgets. Revenue expansion has slipped under 25%, while profitability remains razor-thin despite years of scaling. Datadog’s Piotroski F-score sits on the lower end, signaling poor balance sheet improvement and limited earnings quality.
Meanwhile, competition from AWS, Dynatrace, and open-source monitoring solutions continues to pressure pricing power. Datadog’s story may still be compelling, but its fundamentals don’t justify a valuation that implies perpetual hypergrowth. Like many of the 2021-era favorites, it’s a great business trapped inside an overvalued stock.
Editorial content from our expert contributors is intended to be information for the general public and not individualized investment advice. Editors/contributors are presenting their individual opinions and strategies, which are neither expressly nor impliedly approved or endorsed by Benzinga.
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