These ten shares were on average an almost triple share in 2020. They all share this 1 trait

What makes a stock good? Is it an affordable price? A sustainable, growing dividend? A brand value that is unmatched? These are the most important questions that investors – as well as experienced questions – need to consider.

What I think is a good interest is that the company behind the stock is ‘antifragile’. In fact, the ten most antifragile stocks under a system I have used over the past five years averaged almost a triple in 2020.

But what does ‘antifragile’ mean? And how can you apply it going forward?

What makes them antifragile?

The word was coined by top-selling author and former trader Nassim Taleb. He claims that we often group everything in the world into two groups: the fragile (things that break easily under stress) and the resilient / robust (things that do not break under stress).

But, Taleb argues, it ignores a third and critically important group: the antifragile. It refers to things that actually get stronger when they are exposed to stress. Think of your muscles for an everyday example: The right amount of tension (lifting weights) makes them grow even stronger.

When applied to equities, an antifragel business will have three key characteristics:

• Barbell strategy: A mission-driven business must spend 80% of its resources on low-risk (high canal) business and another 20% on high-risk, high-reward (optical) business.
• Financial strength: These companies have many customers (no concentration risk) and have the type of balance that can help them survive and thrive in difficult times.
• Skin in the game: Businesses run by founders, where insiders own many of the shares and employees like to be there, align the interests of key people with shareholders.

The idea is simple: when these three factors are present, the businesses are likely to continue to thrive in an unknown future. First, I’ll show you the ten companies involved, and then we’ll see why they made the cut.

The ten companies

The ten companies, with their 2020 returns below, are:

AMZN data by YCharts

Barbell strategy

The evaluation of a company’s barbell strategy is divided into three components:

• Mission driven: The company’s mission statement should be simple, inspiring and optional.
• Goat: The core business of the company must be protected by sustainable competitive advantages, or digging.
• Optionality: The company has several ways to fulfill its mission.

All ten companies have impressive digs.

Data source: Business resources for mission statements.

Some companies, such as Amazon, have shown incredible use of the barbell method over the past ten years. Everything the company did, for example, was aimed at providing the best customer service imaginable. Others, like Zoom, are just getting started, but Zoom has already shown that it can benefit from ‘shocks’ in its system.

Financial antifragility

Financial antifragility is also important. The best mission statement and barbell strategy in the world will not make a difference if a business does not have enough cash to stay afloat.

Companies that have a lot of cash, little debt and positive free cash flow can actually take advantage economic distress. How? By buying back their own shares, acquiring competitors or simply pricing the competition out of the market.

It is also best if a business does not rely on just a few customers to deliver the bulk of the sales. If that were the case, a single decision by a single person with one pin could quickly change the prospects for a business.

Data source: Yahoo! Finance, SEC filing. Free cash flow is offered for the next 12 months.

Yes, there are some outliers. Axon Enterprise, for example, has decided to spend more cash than it currently uses to build new tools for police departments. The compromise is reasonable.

Others, such as Shopify, have proved how important the extra cash is: the company has given retailers relief in the form of loans to help them withstand the COVID-19 storm. This not only helped Shopify’s core business, but also a tremendous amount of goodwill from the entrepreneurs who run Shopify.

Skin in play

Finally, companies need to have a lot of skin in the game. This means that those who run the company have the same financial incentive to see that things are going well as shareholders.

Founders often view their companies as existential outgrowths of themselves. Therefore, when the person starting a company is still running it, the balance is turned in favor of investors.

It’s also a good sign if executives (insiders) own shares and (through reviews on Glassdoor) that everyday employees like working for the company.

Data source: SEC filing; all voting power from the most recent proxy statement or annual report. * Is an average between Shopee and Garena.

Again, none of this is a silver bullet. You can be founders involved, insiders who have invested a lot, and have happy employees and still have a bad investment.

A simple takeaway

No investment framework is perfect. After such a good performance in 2020, I would not be surprised to see these stocks perform below the market for a while. This is OK; investment is a game that is played over decades, and not a few years.

For now, it is my top priority to look for other companies that share these features. It will not hurt you to do the same.