A simple three-step process to combat this investing mistake
Editor's note: In today’s essay, we're sharing more timeless advice from our friend and Empire Financial Research founder Whitney Tilson. Today, Whitney tackles> READ MORE
Editor's note: In today’s essay, we're sharing more timeless advice from our friend and Empire Financial Research founder Whitney Tilson. Today, Whitney tackles> READ MORE
Editor's note: Today, we’re introducing you to our friend Whitney Tilson... Whitney has spent decades in the trenches of Wall Street, learning everything it> READ MORE
We all make mistakes. But the more you can learn from others' mistakes, the fewer (hopefully) mistakes you'll make. So here are four mistakes I've made - or> READ MORE
Editor’s Note: Today’s piece comes from our friend and colleague at Stansberry Research in the U.S., Dr. David Eifrig. “Doc” has had a varied career…> READ MORE
One of the big schisms in investing is between people who are focused on the “short term” and those who invest for the “long term.” The problem is, you> READ MORE
Fellow Singapore resident Jim Rogers is an investing legend, a best-selling author and a Guinness World Record holder. He’s visited most countries on earth –> READ MORE
I’ve talked about legendary investor Jim Rogers a lot in these pages. Recently, I sat down with Jim for an exclusive one-on-one interview. I’ve already shared> READ MORE
If you’re looking to invest when the odds are in your favour… where you can make life-changing gains… then look no further than a crisis. When asset> READ MORE
Editor’s note: In today’s essay, we’re sharing more timeless advice from our friend and Empire Financial Research founder Whitney Tilson. Today, Whitney tackles one of the biggest mistakes you can make – and shares three simple steps to help you overcome it.
When you buy a stock, one of two things will inevitably happen…
It will go up. Or it will go down.
In the beginning, it’s really that simple. You buy a stock with just two possible outcomes.
But the truth is, things can get complicated really fast. And as that happens, it often leads to one of the biggest mistakes an investor can make… letting your emotions get in the way.
When you let your emotions take over, you often rush into decisions that you’ll regret later… That’s the case no matter which way a stock is moving.
One common and costly mistake is selling a big winner too early.
As I explained yesterday, that happened to me with video-streaming giant Netflix (Nasdaq; ticker: NFLX)…
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On the day Netflix’s stock bottomed in October 2012, I pitched it to a crowd of 500 at my Value Investing Congress and then went on national television on CNBC. I said Netflix was going to be this decade’s Amazon (Nasdaq; ticker: AMZN), a stock that had risen 20 times in the previous 10 years. And as it turns out, my analysis was spot on…
Over the next two years, the stock rose sevenfold as Netflix’s streaming business grew. But as the stock kept moving higher, I made a terrible mistake… I started to let my emotions take over.
After the stock doubled, I sold half my shares. And when it doubled again, I sold some more. As the stock was doubling a third time, I exited the position altogether.
My analysis revealed that Netflix was trading at a 90 percent discount to its intrinsic value – in other words, a “10-cent dollar.” So as the story played out even better than I could have hoped for, why was I selling it after it doubled? It was still a “20-cent dollar.”
I thought I was conservatively managing risk and didn’t want to be greedy. But I had it backward… To build a successful long-term track record, you must be greedy when the opportunity arises. Finding a monster stock like Netflix only happens maybe once a decade – or even once in a lifetime. So it’s critical that you make the maximum amount of money on such moonshots.
I should’ve made more than US$100 million on Netflix for myself and my investors. Instead, I made less than US$10 million. Of course, that’s not terrible… But it was a costly mistake.
It’s equally important to harness your emotions when a stock is running against you…
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Take SodaStream, for example. Its machines help you turn regular tap water into sparking water with the touch of a button.
I knew SodaStream had a great business model. The company sells something that people use over and over. And the carbon dioxide bottles in its machines need to be replaced regularly. So SodaStream made something like an 80 percent profit margin doing so.
But the company had botched its marketing in the U.S. and was also relocating its main factory in Israel, so its sales and earnings were down. I patiently waited until the stock had been cut in half and bought a small position in 2014.
It turns out that I was much too early. The company continued to struggle and the stock kept drifting lower and lower… for nearly two years!
Making the right decision in these situations is critical. Had I stumbled into a “value trap” that would never turn around – in which case I needed to sell? Or was the company still strong, with fixable problems – in which case I should buy more?
It was very painful losing so much money for so long. Emotionally, I wanted to sell and never think about this terrible investment again.
But I was able to set aside my emotions and focus my analysis on the fundamentals, which remained strong. I added to my position all the way to the bottom – and was well rewarded.
In early 2016, SodaStream’s stock took off as I expected…
By the time I closed my funds in late 2017, it was up five times. And then PepsiCo (Nasdaq; ticker: PEP) bought the company last year for 12 times the price only two years earlier.
It can be challenging to figure out whether a stock is just hitting a few speedbumps (like SodaStream) or if it’s doomed for good (like old-school film company Kodak). But by following a simple three-step process, I realized that I should hold on to SodaStream…
First, assume the market is right and you’re wrong.
You must begin with this mindset because it helps overcome the natural bias we all have to not want to admit a mistake.
You must respect the market. The hard truth is that most of the time it’s right… and you’re wrong. My experience with SodaStream is the exception, not the rule.
Then, you must figure out what you’ve missed and actively seek out disconfirming information.
Redo your work… But don’t just rehash what you already did. That won’t lead to any new conclusions. Instead, you must ask – and honestly and correctly answer – a series of key questions.
Have you made a research error? Are you possibly missing anything? Have you openly and carefully considered contrary arguments? Have you invented new reasons to own the stock (so-called “thesis drift”)?
Many smart investors lost a lot of money owning film company Kodak’s stock in the decade before it filed for bankruptcy in January 2012. It wasn’t an unreasonable investment initially… The company had one of the strongest brands in the world, it generated robust cash flows, and its stock traded at a low multiple of earnings. Sure, digital photography was a threat to Kodak’s film business, but it seemed far off – and the company was making investments to compete in this space.
For most investors who lost money with Kodak, the mistake wasn’t so much the initial purchase. Rather, it was failing to recognize that the film industry was rapidly being obliterated and that Kodak was getting no traction in the digital arena. So its profits were destined to disappear.
The key is to tune out the noise and think clearly and rationally. Focus on the fundamentals… If the company’s earnings rebound, its stock will as well.
Lastly, to make the right decision, you must pretend like you don’t already own the stock.
It’s so hard to make the right decision about a stock you’ve lost money on. The emotions are so powerful!
On one hand, you’re probably telling yourself that if you liked it at the price you bought it, you should like it more now that it’s cheaper. That may be true – but it could also be a value trap. No matter what, you must resist the temptation to double down again and again to try to make back your losses. Remember the old saying… “You don’t have to make it back the same way you lost it.”
On the other hand, your emotions are likely telling you to sell, so that you don’t have to suffer any more pain and never have to think about this terrible stock ever again.
There’s also a powerful feeling of wanting to wait until it gets back to the price you bought it before selling.
You must resist all of these feelings! Emotions are deadly when it comes to investing…
I’ve found that it helps my thinking to pretend like I don’t own the stock. I ask myself, “If I were 100 percent in cash today and building a portfolio from scratch, would I own this stock? And if so, what size of a position would I have?”
Doing nothing may be the best option, but you also must have the courage to admit a mistake and get out – or know that you haven’t made a mistake and buy more.
If a stock is going against you, follow this simple three-step process. And if you wouldn’t buy the stock if you were starting a portfolio from scratch, then you should sell it immediately.
Editor’s note: On April 17, at 8 p.m. Eastern time, Whitney will join Stansberry Research founder Porter Stansberry for a special investing event. He’ll reveal the secret to his investing success… and announce the biggest prediction of his career. Folks who tune in will even get the name and ticker of the company he calls the “No. 1 retirement stock in America”… just for showing up. Sign up for this free event right here.
Editor’s note: Today, we’re introducing you to our friend Whitney Tilson… Whitney has spent decades in the trenches of Wall Street, learning everything it takes to build tremendous wealth in the markets. And now, his newest venture – Empire Financial Research – aims to educate individual investors and help them make better decisions.
In today’s essay, we’re sharing some of Whitney’s most valuable insights. Today, you’ll learn more about his background, as well as four tips for beating the market over the long run…
In the past two decades, I have learned some valuable investing lessons…
My journey to launch Empire Financial Research has been unique. So please bear with me while I tell you a little about myself and my personal background…
My parents met in the Peace Corps in 1962. I was born four years later and spent much of my childhood in Tanzania and Nicaragua. In between, we lived in California, where my father earned his doctorate in education at Stanford University.
While we were there, I was one of 600 children who took part in the now-famous Stanford Marshmallow Experiment to study delayed gratification. (To this day, they still won’t tell any of us if we waited for the second marshmallow!)
Later, we moved to New England, where my father was the academic dean of an elite boarding school in western Massachusetts. I stayed in the area, attending Harvard University and later Harvard Business School, graduating with high honors at both. (Before graduate school, I helped my friend Wendy Kopp launch the Teach for America nonprofit educational program.)
Then, in late 1998, I raised US$1 million to launch my own hedge fund…
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They say it’s better to be lucky than good. I’d like to think I was a little of both. Over the next dozen years, I grew assets under management to US$200 million, nearly tripling my investors’ money in a flat market.
Toward the end, though, I made some key mistakes. I worried about another downturn, so I was too conservative with my portfolio… I took profits too quickly, held too much cash, and shorted too many stocks. After trailing this historic bull market for a number of years, I decided to close my funds and give my investors their money back.
I’m incredibly proud of my time in the hedge fund world. But when Porter Stansberry approached me with the idea of starting my own publishing company, I jumped at the chance.
I’ve long admired Porter for his business prowess. (After all, how many of us can say we launched what has become one of the world’s largest newsletter publishing businesses at 26 years old with a borrowed laptop at his kitchen table?!)
My new venture – Empire Financial Research – will allow me to share what I’ve learned over the past few decades on Wall Street with individual investors like you.
Anyway, that’s enough about me.
For the rest of today’s essay, I’m going to share what you’re actually here for: to learn the four steps that individual investors can take to beat the market over the long run…
The first step is the most important, and one: effective portfolio management.
This is such an important skill for investors to have, but I didn’t fully appreciate this early in my career. When I got into the business, I thought all I had to do was find cheap stocks and be a good stock picker.
It was only through hard experience that I came to learn that stock-picking is only half the battle. The other 50 percent is managing your portfolio, which can create or destroy as much value as the stocks you own.
To borrow a baseball analogy, your batting average matters a lot less than your slugging percentage. It’s not how many of your picks are right… it’s how much money you make when you’re right versus how much you lose when you’re wrong.
If you’re consistently sizing your best ideas too small, you’re hurting yourself just as much as if the stocks you buy go against you.
Another huge mistake many individual investors make is not being greedy enough. If you’re sitting on a big winner that runs up 50 percent or 100 percent, trimming your position can stunt your returns tremendously. The opposite is true, too. When you hang on to your losers way too long – or worse yet, average down on your position – your losses can mount quickly.
It’s critical to have the judgment, humility, and fortitude (which come from experience) to know when to let your winners run and cut your losses.
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Let’s say you’re a great stock picker and you assemble a portfolio of 10 companies… Over the next five years, seven of them are up big and the other three are down. Had you not touched your portfolio, your portfolio would have been in great shape.
But if you’re a poor portfolio manager, things can really start to go haywire.
In October 2012, I had nearly 5 percent of my portfolio in video-streaming company Netflix (Nasdaq; ticker: NFLX), right at its multiyear lows. And then it took off, becoming one of the greatest stocks of all time. But even though I had publicly predicted almost exactly what would happen, I only made about a tenth of what I should have. Because as the stock moved up, I kept selling and eventually exited far too early.
Had I simply gone away on a five-year vacation, I would have done far, far better – it’s up almost 50 times since then! It’s painful for me to see (and admit) that my management of the portfolio left a lot of money on the table. I ended up taking a portfolio that would have crushed the market and significantly trailed it instead.
In effect, my portfolio-management strategy was to pull my flowers and water my weeds… a deadly combination.
It’s also critical to give your investments long enough to let your thesis play out.
One of the biggest advantages individual investors have over professional money managers is the lack of short-term performance pressure.
Even the people who manage endowments and pension funds – which by definition have multidecade investing horizons – are evaluated on a short-term basis, sometimes even monthly.
But sometimes, stocks can remain cheap for years. It reminds me of an anecdote that investing legend Warren Buffett once said…
All I want to do is hand in a scorecard when I come off the golf course. I don’t want you following me around and watching me shank a three-iron on this hole and leave a putt short on the next one.
Meanwhile, 99 percent of the money in the world is managed by people who feel someone looking over their shoulders, ready to scold them for any mistake.
Sometimes stocks are cheap because they have no short-term catalyst to push shares higher. This means that they can languish for a while… But I’ve found that trying to anticipate when other investors’ sentiment will change is a mug’s game. It’s not the end of the world if a cheap stock remains depressed for a while… as long as you have an appropriate investing horizon.
I’d argue the only money you should be investing in the stock market is money you don’t need for three to five years. That sort of time frame gives you the patience to wait for high-quality stocks to go “on sale” and for your cheap stocks to start to move (assuming you’re right that they’re cheap!).
Next up is another core tenet of value investing: buying when the odds are in your favor.
In the value investing community, this goes hand in hand with what the father of value investing Benjamin Graham called “margin of safety.”
Imagine you’re driving a big truck over a bridge with a lot of other trucks on it that weigh a collective 49 tons. How would you feel if the bridge were engineered to hold only 50 tons?
When it comes to important things that your life – or financial future – depend on, you want to give yourself plenty of room to be wrong. Ideally, you want to consistently buy stocks where if you’re right, you double your money (or more) in two to five years, and if you’re wrong, you only lose a little.
That brings me to the last way you can put yourself in the position to beat the market: concentrating your portfolio in your best ideas.
Over the last half-century, a handful of folks figured out that Buffett is an investing genius, so they put their entire net worth into his holding company, Berkshire Hathaway (NYSE; ticker: BRK). That has obviously worked out well for them, but I highly recommend against such extreme concentration.
I think most investors should own somewhere between 10 and 20 stocks. This provides reasonable diversification, yet also allows you to concentrate on your best ideas.
These days, it’s becoming harder and harder to find stocks that the market has badly mispriced and undervalued… especially a decade into a complacent bull market like the one we’re in today.
The idea that any one investor can have real, proprietary insights – what I call “variant perceptions” – across dozens of stocks is hard to imagine. But by focusing on a handful of situations where you have an edge over the market, you’re likely to do far better than you would by owning dozens of stocks.
Editor’s note: Mark your calendars… On April 17, Whitney will go on camera to share his biggest investment prediction in 20 years. And he’ll even reveal the name and ticker symbol of what he calls the “No. 1 retirement stock in America” to everyone who tunes in.
Plus, just for signing up to attend this free event, you’ll receive access to a three-part video series on one of Whitney’s favorite companies… behind-the-scenes Q&A videos… and two more of his strongest-conviction ideas. Reserve your seat right here.
We all make mistakes. But the more you can learn from others’ mistakes, the fewer (hopefully) mistakes you’ll make.
So here are four mistakes I’ve made – or I’ve seen other people make – that (if I’m smart) I’ll never make again… and (perhaps?) you won’t either…
1. Thinking I know more than the market
The market – stocks, real estate, and any other market you can think of – is an instant and ever-changing referendum on how trillions of dollars and millions of investors think about a particular asset. A lot of very smart people are paid a lot of money to interpret what it all means. And people with a whole lot more money than you or me have a lot more at stake than us… so they’re very focused. They know a lot about what their money is doing right now.
So the day that you feel like you know more than that incredible weight of insight – even if it’s about a single stock or obscure market – think again… because you probably don’t. You might have an angle, or a temporary edge, but it isn’t much, and it’s probably not going to last.
Even you can tell yourself that, and you still feel comfortable with buying that stock, go ahead. But do it with the full recognition that you’re probably missing out on something… and you’re probably more ignorant than you think you are. You might make money anyway, but that will probably be thanks to luck – not your brilliant insight.
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2. Mistaking industry expertise for stock insight
Last year, I wrote about my college friend Simon, who was a big-time IT whiz. So naturally, 22-year-old me asked Simon what he thought about computer stocks.
Simon recommended a company called Zeos International, an up-and-coming computer maker in the early 1990s. It was growing fast and offered round-the-clock customer service (an innovation at the time). The clincher for me was that Zeos was a big advertiser in the many computer magazines that Simon read.
So I bought shares of Zeos, instead of, say, Dell. It was my first million-dollar mistake.
But buying a lot of ad space and being an industry darling didn’t translate into corporate success… or a rising share price. It turned out that Zeos made lousy computers. And Zeos went to zero with a few years.
Simon had good insight on the dynamics of the computer industry. But he didn’t have any insight about stocks. They’re two very different things… and sometimes, too much expertise can hurt actual insight on stocks.
3. Thinking that someone else has my best financial interests in mind
Recently, a guy I had just met was talking about money: “Oh, I have a personal banker… and I get all the information I need about markets and investing from him, and he helps me invest.”
So I asked him what his returns were last year.
The guy answered, “I don’t know. But I know that he’s doing everything he can and giving me the best advice out there.”
It amazes me that there is anyone who doesn’t understand that the only person you should rely on to look after your money, and your financial future, is yourself. (This is one of the reasons I started Stansberry Pacific Research.)
The financial-industrial complex – the financial media, private bankers, so-called trading gurus and all the rest of them – wants to “help” you take care of your money.
But their “help” often enriches them, far more than it enriches you. And if you let them, they might leave you completely ignorant… and poorer.
So if you want to make sure your finances are well looked after, then by all means do get input from a professional. But remember that it’s you who is accountable for your own money – and you should be overseeing everything about your own money.
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4. Feeling badly about money
The world is made up of people with nothing – people who are desperately poor and sick and suffering. Like many others, I try to help people in need where and how I can. I hate the inequality of it all… and I feel badly for the billions of people on earth who have almost nothing.
But that doesn’t mean that I don’t like money… or that I feel that money, or having money, is bad.
You see, if you believe on some level that money – and being rich – is “bad,” there’s a voice in your head that’s going to stand in your way of ever having much money.
Of course, for a lot of people, money isn’t important. They have other goals in life – finding the perfect wave or eating their way across Asia – that don’t require much cash. And that’s fine.
But if you’re not like that, and if you want money, don’t get in your own way.
We’ve written a lot about how your emotions can get in the way of making good investment decisions. But not liking or being afraid of money is probably the biggest barrier to wealth of all. And it’s one you might not even recognise.
Publisher, Stansberry Pacific Research
Editor’s Note: Today’s piece comes from our friend and colleague at Stansberry Research in the U.S., Dr. David Eifrig. “Doc” has had a varied career… starting off on the trading desk at major Wall Street investment banks. After a decade of trading, he quit Wall Street and went back to school to become an eye surgeon. So he’s learned the inner workings of two of the biggest and most important industries in America – finance and medicine. Now, he spends his time advising others on improving their health, managing their money and enjoying a prosperous retirement. Read on below to see why Doc says you’re not ready for an emergency…
Last month, a historic “bomb cyclone” hit much of the U.S.
This storm brought blizzards, flooding, and tornadoes causing power outages, evacuations, and several states to declare a state of emergency.
Tree limbs and hail resulting from these storms cost thousands of dollars’ worth of property damage each year, not to mention they can inflict physical injuries on folks.
Even if you haven’t thought about it before, it pays to plan ahead for these types of disasters. In fact, good preparation will help for any type of minor disaster – basement floods, hail damage, burst pipes, and more.
But most of America doesn’t have enough cash on hand to cover these types of emergencies…
Around 60 percent of Americans don’t have enough in savings to cover even a US$500 emergency. And one survey found that around 80 percent can’t cover a US$1,000 emergency expense!
I can’t stress enough the importance of an emergency fund.
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If you look at your financial life as a house, an emergency fund should be the foundation. You want to make sure, in the event of an accident or job loss, you have the funds available to pay your expenses.
Typically, financial planners recommend having about three to six months’ worth of take-home pay in your emergency fund. We’ve even seen some recommendations for as much as nine months’ worth of pay saved.
Before deciding on how much is best for you, consider the following:
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Finally, make sure that your emergency fund is kept in easy-to-access accounts. These include checking and savings accounts, certificates of deposit, and money market accounts. The idea is to be able to get the funds quickly with little or no penalty fees.
Online emergency-fund calculators can help, but make sure to use ones that account for all five of the above points. And we suggest using more than one and averaging the results. You can start with this one from NerdWallet, and this one from Practical Money Skills.
Once you calculate your emergency fund, you can start putting any leftover money to work in other investment accounts that can make you money.
Even if you can’t start with much, an emergency fund is an important first step toward a solid financial foundation.
Here’s to our health, wealth, and a great retirement,
Dr. David Eifrig
P.S. Doc’s free Health & Wealth Bulletin e-letter is your guidebook to intriguing health and wealth ideas… and how to live a “millionaire lifestyle” on far, far less than you can imagine. You can sign up to automatically receive the Health & Wealth Bulletin right here.
One of the big schisms in investing is between people who are focused on the “short term” and those who invest for the “long term.”
The problem is, you might think you’re one… but you’re actually the other.
The (real) long-term camp aims to follow the model of Warren Buffett or Herbert Wertheim (who is, according to Forbes magazine, the greatest investor you’ve never heard of)… and you find great companies, invest in them and don’t waver. (Wertheim, among other investment coups, invested in Apple (Nasdaq; ticker: AAPL) and Microsoft (Nasdaq; ticker: MSFT) at their IPOs.)
They own the stocks of individual companies. They know what they own. And they can buy or sell whenever they want.
Imagine a stock that pays you 100% income on your money every year… and continues to do so for the rest of your life. $1,000 in savings would pay you $1,000. $10,000 would pay you an extra $10,000. $100,000 would pay you $100,000. And again, that’s every year. We never thought an investment like that would be possible…
If you own an investment fund of any sort, though, short term and long term may have a lot more in common than you’d think.
That’s partly because different people define short-term and long-term investing differently. Depending on who you are and what you’re doing, “short term” can be anything between the time it takes you to blink, to a lunar cycle, to a few years.
And “long term” can mean anywhere from a few days (an eternity for some traders), to a few years, to two generations from now.
Most fund managers – mutual funds, hedge funds, and most other funds that aren’t wedded to an index – talk about “investing for the long term.”
It’s probably one of the most abused expressions in investing. Most of all, you’ll hear it from asset managers who talk about how they “engage[d] extensively with companies, clients, regulators and others on the importance of taking a long-term approach to creating value.”
That’s how Larry Fink, the head of Blackrock, the world’s largest asset manager, says his company’s funds invest.
Of course, companies (or people… including private bankers and financial advisors) that manage your money want you to invest for the long term. The longer they control your money, the more you’ll pay them in fees. And it can take a while for their great investing ideas to work out. At least that’s what they want you to think.
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A number of years ago, I managed a hedge fund. Like most people who manage other peoples’ money, I talked about investing for the long term. I didn’t have a magical short-term trading system (no one does). So it was a lot safer to talk about cycles, themes, trends, low valuations and long-term partnerships.
After all, like Blackrock, I wanted to be married to other peoples’ money – not just take it out for dinner and a movie. It’s better to make 2 percent (for a hedge fund) of someone’s money for 10 years than for just a few months.
But the reality was, my idea of long-term investing was really “as long as the idea works.” I wasn’t focused on where a stock I bought was going to be trading six months, one year, or three years later. I was concerned about where the price was going to be over the next week or month.
For me, “long term” was the end of the quarter, whether that was two months or two days away. And the dirty secret of most mutual funds and other big money managers (no matter what their marketing pitches say) is that they think the same way. Ignore the marketing hype. If you let someone else take care of your money, very rarely is there a real “long term.”
Money management companies, and the people who manage money, are usually assessed based on their quarterly performance. They generally have to show their holdings once every three months. Some are paid based on how they performed (compared to the index or in absolute terms) over the quarter. So for people who manage money, the unemployment line is one or two bad quarters away.
That means a stock that doubles over the next two years, but does nothing for the first six months, is “dead money.” Few fund managers are willing to wait for a long-term idea to work out if that takes more than, say, three months. That means less money in the bank.
Fortunately, there is a way out of this: Invest for yourself and define your own long term. The reality is that a stock that doesn’t do anything for six months, but (say) doubles over two years is a fantastic investment… one that even great investors experience only occasionally.
Waiting – a la Herb Wertheim – can be worth it. For example, lots of studies have shown that buying stocks that are cheap – that is, have low valuations – will result in better performance than buying stocks that are expensive.
One study found that over a 25-year period, the cheapest 10 percent of stocks in the Russell 1000 Index, a big U.S. market index, performed four percentage points better per year than the index as a whole. That means investing in the cheapest stocks would have earned you 2.5 times as much over the period than investing in the broad market.
But few fund management companies, or fund managers, have the necessary kind of patience to buy cheap stocks and wait. They’re afraid of being caught in a value trap. They want to get paid, this quarter. And they don’t want to get fired.
But you can invest for the long term yourself. Maybe, like I did (and like most funds), you’ll sell at the first sign of trouble. But the best thing is that giving yourself time allows for good things to happen.
Publisher, Stansberry Pacific Research
Fellow Singapore resident Jim Rogers is an investing legend, a best-selling author and a Guinness World Record holder. He’s visited most countries on earth – many while traveling around the world on a motorcycle and by car – forming the basis of two of his books, Investment Biker and Adventure Capitalist. If you haven’t read them… you should.
In addition to his great investment insights, Jim is an authority on how to follow your passions.
Below are excerpts of past conversations I’ve had with Jim, during which he talked about how to do what you want – and (maybe most importantly) how to figure out in the first place what that is.
I asked Jim his advice for young people on how to live a successful and happy life.
Jim: Well, the most important thing for everybody is to only get involved with what you, yourself, know a lot about, or… figure out your own passions and pursue your passions. Don’t listen to me. Don’t listen to your teachers. Don’t listen to your parents. Don’t listen to your friends – especially your friends. They all want to do whatever is popular and hot at the moment, your parents too, and your teachers too, probably.
No. Figure out about your own passions. And if people laugh at you, you’re really onto a good thing. You’re really probably going to be very successful, if you pursue your own passions and figure out how you would like to spend your life and that way you never go to work. You wake up every day, you have fun… just start doing what you love, you don’t care about weekends, you’re just having too much fun to worry about work.
Those are the people who are most successful, and of course, they are the happiest people. And if they’re not successful they don’t care, because they’re happy. They don’t care if they’re successful or not, they are so happy having so much fun.
I mean, Kim, if you want to be a gardener, you should be a gardener. Now, your parents are going to say “What is going on here? We didn’t spend all this money raising you and educating you to be a gardener,” and your teachers are going to say, “Why are you even here? Why don’t you leave and go be a gardener? What a waste.” Your friends… they’re going to laugh and giggle.
But then someday you’re going to be the gardener at the White House, or Buckingham Palace, and someday you’re going to have a chain of garden shops, all across Asia. They’ll be listed on the Hong Kong Stock Exchange, New York Stock Exchange… Your parents are going to say, “Kim, we used to give you seeds because we could see. We knew you had it in you.” And your teachers are going to say, “We always used to encourage you, remember how we encouraged you to be a gardener?” And your friends are going to call up and say, “Kim, oh my God, it’s been a long time…”
That’s how you become successful and happy.
I asked Jim that if there was a message, a thought or idea, that he could put on virtual billboard that billions of people would see, what would it be?
Jim: Buy low and sell high. [He laughs.]
I’d tell them to learn a second language, especially Chinese… not get married too early… don’t have children too early… put your money somewhere safe… get a job when you’re young.
My daughter turned 14. I told her she had to get a job when she was 14, because it’s good for children.
I thought she would go to McDonald’s and make US$8 an hour. Instead, she’s teaching Mandarin at US$25 an hour. I mean, this kid’s smarter than I am, a lot smarter than I am. And she complains because the grownup teachers make US$80 an hour. She thinks she should be making what they make. So having a job when you’re young is very important.
Another piece of advice Jim has given me sounds obvious at first, but really isn’t: Talk to everybody you can…
Jim: I’m trying to teach my children – they’re still very young – to get information from five or six different sources, preferably contrasting sources, left-wing, right-wing, call them what you will, from different countries and then you figure out what’s really happening. If you read the communists and the fascists and the Nazis and the capitalists or the religious, if you read them all, you get all sorts of different views, but it’ll help you figure out what really happened.
Sometimes, I get interviewed by different kinds of people. A few will say, “Well, why are you talking to them? They’re nuts, they’re crooks, they’re blah, blah,” whatever. And I try to say, “No, no, first of all, the one problem in the world right now is we don’t talk to each other. We should be talking to everybody, no matter what you think of them. And second, that’s how you get your message out. If you talk to them, they have to listen to you no matter how nuts they are. And also, you can help possibly change the world.”
So talk to everybody. The weirder the better.
Again, Jim Rogers isn’t just an authority on investing… he’s a great resource for how to live your life to the fullest. So when he talks, I listen.
Publisher, Stansberry Pacific Research
P.S. I write International Capitalist, where I focus on investment opportunities in markets that are even of interest to investors like Jim Rogers. I focus on out-of-favour stocks in out-of-favour markets… or else places that you’d just never think of looking at. And the returns in those places can be extraordinary. You can learn more here.
I’ve talked about legendary investor Jim Rogers a lot in these pages. Recently, I sat down with Jim for an exclusive one-on-one interview. I’ve already shared the one thing he says you need to be successful and his advice for protecting yourself from the major threat to global markets.
Today, I’m sharing what Jim told me about how he finds investment opportunities… and what he thinks are the most compelling opportunities in markets today.
(Jim’s investment style and approach is unique and impossible to copy. I do my best, though, with International Capitalist… I travel to off-the-radar destinations – with big upside – around the globe. Find out more here.)
The Audience GASPED when he revealed how you could collect 100% on your savings every year… for life. See for yourself in this video.
How Jim Rogers finds investment opportunities
Kim: What are the two or three things that make you take notice of an investment opportunity – anything from valuations, underperformance or bad headlines?
Jim: Well, a disaster. And listen, disasters like Venezuela don’t come along every year. Those are few and far between. Disasters like North Korea don’t come along very often.
North Korea has been a disaster for 80 years, more. But now, it’s coming to fruition.
If you find one of these things, just be attentive. Venezuela’s been in decline for 25 years now, but now is the time to do something. Americans are under sanctions, we cannot do much in Venezuela, but other people can.
When you see things like that, you don’t have to ring the bell. The horrible 25 years in Venezuela is coming to a climax. North Korea, the terrible 80 years is coming to a climax. These things eventually end, but as I said, they don’t happen every year. You just have to be attentive and be alert when they happen.
The most exciting opportunities right now
Kim: So what countries, markets or sectors right now jump out at you?
Jim: Well, Korea is going to be the most exciting country in the world soon. Unified Korea has 80 million people on the Chinese border. It has lots of natural resources, cheap labour, disciplined labour, in the North. No debt in the North, with educated labour and resources. And in the South, they have lots of capital and expertise on the Chinese border.
[Regarding the unification of North Korea and South Korea] China’s for it, Russia’s for it, South Korea’s for it, North Korea’s for it, it’s going to happen.
The American military doesn’t want it to happen because it’s the only place that America can have soldiers on the Chinese border and the Russian border on the eastern borders. So they don’t want it to happen.
Readers of this newsletter only: Here’s what Kim didn’t share with CNBC last month…
“From less than US$4,000, I’ve seen a US$42,265 profit in about nine months…
The Japanese are against it because they cannot compete with a unified Korea, and they know it. They have a declining population, gigantic debt, many other problems. They’re trying to stop it, there’s not much they can do.
[Japanese Prime Minister Shinzo] Abe talks about, 40 years ago, the North Koreans kidnapped 13 Japanese citizens. That’s all he can bring up. He cannot say, “We don’t want it because we cannot compete. We don’t want a new competitor.” So it’s going to happen one way or the other. It’s going to happen fairly soon.
Korea will be exciting, it’ll be less badly hurting than everybody else because you’ve got this virgin territory in the north, it’s very cheap and no debt.
Other places, I mean, Venezuela is a disaster, not going to get much worse. Everybody in Venezuela now knows, even the guy in charge knows something’s got to change because it’s a disaster.
I don’t have any investments in Venezuela. I’m a citizen of the land of the free [the United States]. We’re not allowed to do things that other countries can. Other people can invest in Venezuela, but not Americans right now.
But if you can invest in Venezuela now, coming out the other side, you’re going to make a fortune because it’s a disaster. The whole thing is a total unmitigated disaster. But places like that, you can invest now and you do fine on the other side.
Agriculture’s like that. Not as bad as Venezuela, not as bad as North Korea. But there are many good things happening to change agriculture, conceivably Turkey. I have not done anything in Turkey for a variety of reasons. But there are some places where changes are taking place. Russia. I do have investments in Russia. So there are places.
Publisher, Stansberry Pacific Research
P.S. Finding disasters that could be great investing opportunities is exactly what I do in International Capitalist. I focus on out-of-favour stocks in out-of-favour markets (including Russia, for example)… or else places that you’d just never think of looking at. And the returns in those places can be extraordinary. You can learn more here.
If you’re looking to invest when the odds are in your favour… where you can make life-changing gains… then look no further than a crisis.
When asset prices collapse, it creates life-changing opportunities to buy (the right) assets on the (very) cheap.
But investing in markets or companies in crisis requires leaving what you know… overcoming your “home country bias”… and running towards the fire. (That’s part of what I do in International Capitalist… I travel to off-the-radar destinations – with big upside – around the globe. Find out more here.)
Below are three of my favourite examples of markets in crisis that were fortune-making for savvy investors (two of them in countries where I’ve lived). The exciting thing is that the “before” part of each of these situations exists today – in some market or sector or company… it’s just a matter of finding it – before it becomes the “after” of the examples below. (Right now, I’m writing the next issue of International Capitalist about a market that’s in the very early “before” part of this equation… and the upside potential is enormous.)
And according to our just-released presentation, that could be just the beginning…
Today, it’s strange to think of Spain as a fascist dictatorship. However, from the 1930s through the 1970s, its markets and economy were largely isolated from the rest of the world. Europe effectively ended at the Pyrenees, the mountain range separating Spain and Portugal from France.
When Spain’s long-time dictator, Francisco Franco, died in November 1975, the country’s future was up in the air. For several years, civil war and chaos looked like a real possibility. (I lived in Spain then… and though as a pre-adolescent I didn’t realise it, the country was at a true crossroads.)
But Spain slowly evolved into a democracy. It adopted a new constitution in 1978, and the government put down a coup attempt in 1981.
The 1982 elections solidified Spain’s transition to democracy and its eventual position in the western military alliance, NATO.
In 1986, Spain joined the European Economic Community (EEC) – now the European Union. (That year, people rang in the new year, marking the official entry into the EEC, with the cry, “We’re Europeans!” I was living there then… and it made a big impression on me.)
At the time, new EEC members received massive infrastructure investments to help lift their standard of living to be on par with the rest of the union. These funds fueled a two-decade economic boom in Spain that only ended with the 2008-2009 global economic crisis.
Investors who saw the opportunity for enormous positive change in Spain in the 1970s could have made returns of 4,300 percent in subsequent years.
In 1983, Sri Lanka, a small island nation south of India, entered a prolonged civil war. The conflict between the Sinhalese ethnic majority and the Tamil ethnic minority lasted 26 years. It was one of history’s more brutal conflicts… the Tamil Tigers reportedly invented the suicide vest – and pioneered suicide bombing as a war tactic. My Sri Lankan friends used to talk about the security challenges of a simple trip downtown… and about high-calibre guns that were lined up on the top of office buildings downtown in case of a rebel attack.
The long war stunted the country’s economic growth and created political uncertainty. Suicide bombings and other terror tactics by the Tamils posed an ongoing threat to the rest of the island. This fueled a steady migration out of Sri Lanka and kept out foreign investment.
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Meanwhile, excessive government spending fostered high inflation and constant budget deficits (when governments spend more money than they take in). As a result, Sri Lanka’s stock market suffered low turnover and minimal foreign interest. Sentiment toward the country was overwhelmingly negative.
(to much of the rest of the world, Sri Lanka’s civil war is what they know of the country… I’ve often been asked, “Oh, are they still at war?” when I mention that I lived there for a few years.)
In 2002, Sri Lanka’s economy began to slowly improve, and the country made some progress toward political harmony. The turnaround was strong enough to trigger a sharp rally in the Sri Lankan market. In November 2005, the election of President Mahinda Rajapaksa, coupled with a strong public mandate to end the civil war, fueled the rally.
Then the global economic crisis hit, along with the final and most ferocious chapter in Sri Lanka’s civil war, and in early 2009 the country’s stock market fell sharply.
The Sri Lankan stock market didn’t re-rate until the Tamils were definitively defeated in May 2009. The northern and eastern regions of the country – previously off-limits to investment and economic development because of the war – were gradually re-integrated into the economy, bolstering growth.
Investors who bought Sri Lankan stocks amidst negative sentiment could have made gains of 2,000 percent – though with plenty of volatility along the way.
The sugar industry experienced multiple price shocks throughout the 20th century. That’s not unusual for commodities, which tend to go through cyclical “boom and bust” periods.
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Sugar boomed from 1962 to 1964, after the U.S. suspended imports of sugar from the Caribbean island of Cuba. (Socialist Fidel Castro led the Cuban Revolution that ousted President Fulgencio Batista in 1959, and the U.S. imposed a multi-decade economic blockade on the country, as part of its failed effort to undercut Castro.)
In 1964, the price of sugar started to fall. By 1966, the price had collapsed to close to a penny per pound. Finally, sugar was so cheap that demand started to rise. Then, in 1969, the U.S Food and Drug Administration banned cyclamate, a common sugar substitute, after researchers discovered it was carcinogenic. This pushed demand for sugar even higher.
Over the next four years, consumption outpaced supply, and inventories dwindled. This triggered a dramatic increase in sugar prices. Sugar hit a high of US$0.64 per pound in October 1974.
Investors who got in at the 1966 low could have made upwards of 5,000 percent through late 1974.
Today, many markets are close to all-time highs. But there are plenty of assets that are in crisis… or – maybe even worse – are unloved and ignored. As a result, they’re trading at crisis-like levels.
Finding high-upside opportunities like these are the reason I launched International Capitalist. I look all over the world for attractive investment opportunities with the potential for big – and even life-changing – profits. For a limited time, we’ve opened up International Capitalist to new subscribers… you can learn more about it – and my top stocks to buy for 2019 – right here.
Publisher, Stansberry Pacific Research
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