Porter Stansberry: My annual investment goal never changes. There are two parts.
First, I strive to save at least half of my after-tax income. I define "saving" broadly. Buying cars doesn't count. Buying gold does. Buying land does, even if it's merely land for recreational purposes like hunting and fishing. That's because I can be reasonably certain that in 10 years I could sell any of the land I bought last year for far more than I paid for it. And, of course, some of the real estate I bought was income producing. Last year, according to the latest numbers from my accountant, I saved 59% of my after-tax income.
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Now, you might complain that saving so much is easy for me, because I have a large income. Bullshit. I don't care how much (or how little) you earn. Saving is always hard. The temptation is always there to enjoy the wealth you've accumulated right now. To save 59% last year I had to give up some of the things I've been able to afford historically. My income has fallen because I hired a CEO for my company and gave up a large amount of my compensation in exchange for his service. To make sure my savings rate didn't change, I had to make big changes to my lifestyle and spending habits. Believe it or not, it is every bit as hard emotionally to give up these perks—even harder, actually—than it was to do without things when I was younger. Back then, I didn't know any better.
I have always been willing to exchange short-term gratification for long-term wealth. I made the same choices at 26 when my salary was $32,000 per year. Back in 1990, I lived in a walk-up, ghetto apartment at the corner of North Avenue and Eutaw Place in Baltimore. This is one of the 10 or so most violent neighborhoods in the United States. But it's all I could afford at $250 per month. I also drove a 10-year old car and rode a bike when it broke down. I never went out to eat. I didn't have a TV or Internet access. What did I do? I read a lot. I spent a lot of time running, exercising. And I worked around 100 hours a week. I planned what I would do with the money I was saving and the businesses I was starting. That was how I saved half my income when my income was much smaller.
I would have never become wealthy if I hadn't made these choices. They gave me the financial footing I needed to drive a hard bargain, to make the right deal and to demand the rewards I earned in my business career. It would have never happened for me if I hadn't been willing to sacrifice near-term comfort and convenience for long-term gains.
If you really want to be wealthy (and there are plenty of other important goals in life), you had better learn to save half of your after-tax income. If you can't do that, then you're deluding yourself.
So, first goal every year is to save more than half of my after tax income.
Part II of my annual financial goal is to secure a growing, substantial income.
Every year, I invest $1 million in one great business that's trading at an incredibly cheap price. Sure, I make plenty of other investments, too. But this is my main financial goal each year: Buy one great business. I don't diversify these investments. I don't try to buy 10 great businesses every year. And, I don't use trailing stop losses on these investments. I normally recommend diversification and trailing stops to all investors for their portfolios.
So, why don't I use those tools with my own money?
Well, I do. But just not in the way you're used to seeing.
I started putting $1 million into a single stock when I turned 40 years old. I figured that if I did this 20 times, by the time I was 60 I would own a pretty incredible group of businesses. Sure, some of them may go bust. But, I'll be diversified over time. My portfolio allocation is still only 5% into each business. If you limit your position size, it's okay not to use a stop loss. I don't want to tell you what I've bought so far, because I don't want you to invest in the companies I know and admire. I want you to buy great operating businesses that you know and admire.
Pick one a year. Make a substantial investment. Go to the annual meeting. Read the quarterly reports. Correspond with the management team. Think and act like an owner. I promise, this will change the way you think about business and the way you behave as an investor. And it will greatly increase your average returns.
If you don't know what a great business looks like, I have written about "World Dominating Dividend Growers" on my website. Or, for an even easier black and white list, just consult the PowerShares Dividend Achievers ETF (PFM:NYSE). These are all companies that have proven over many decades to be excellent companies managed by truly talented and honest individuals. The top 10 holdings today are: Wal-Mart, Proctor & Gamble, Johnson & Johnson, Exxon, Coca-Cola, Chevron, Intel, AT&T, IBM and Pepsico. The average price-to-book ratio in this ETF is 2.7 and the average price-to-sales ratio is 1.5. If you're buying equity for more than these prices—and you probably are if you invest in mutual funds—you're getting ripped off.
My goal is buy companies that can match these firms in terms of longevity, performance, return on assets/equity, profit margin, etc., but are trading for less than 10 times earnings. (The average price-to-earnings multiple in the Dividend Achievers ETF is currently 17.5). So far I've bought two great businesses for around four times earnings. These opportunities are available, year after year, for folks who are willing to study great businesses and buy them when, for whatever reason, the market turns against them. The key to success when it comes to buying publicly traded stocks is to simply know the business you're buying and never pay too much.
I could go on for a long time about the types of businesses I admire—they don't have any debt, they don't require much in the way of capital investment, their CEOs make very rational capital allocation decisions (such as buying stock instead of paying a dividend only when the stock is very cheap). The point is: I only want to invest in businesses that are far, far better than I could build with my own capital. If I buy 20 great businesses over the next 20 years, then, whatever else happens with my companies, or with my career, both my family and I will have a tremendous amount of financial security. I have the luxury of plenty of investment capital because I took the time to learn how to save. That's why saving comes first, and investing comes second.
Remember, every great journey begins with a single step.
10 Ways to Make 2015 the Best Year Yet
Like Porter Stansberry, a lot of investors are focused on spotting bubbles and managing risk in 2015. These 10 sector experts shared their plans for making the most of the coming year. You can share your resolutions in the comment section below.
Rick Rule: I think we're on the verge of a spectacular resource market place. I believe we will see capitulation in the next couple years, and two years from now we will look like heroes because of all our smart decisions.
I am really enjoying the opportunities now to buy low, but my resolution is to sell at the right time. That is the key to successful execution. During the large resource resurgence that is coming, I have to be disciplined and sell just when things are looking good. That is very hard, but very, very important.
Harry Dent: My resolution is to respect bubbles. They grow exponentially, usually over five or six years, which is about as long as this one's been building.
Most economists don't study bubbles. They don't understand them. People who do understand bubbles tend to call them too early. I've had to keep going back to my subscribers and say, gosh, it looks like it was peaking here, but we're still not getting signs because it still wants to go up.
I'm going to respect the bubble, stay with it and look for a peak around March of 2015 and the NASDAQ to retest its bubble highs in 2000 of 5,050. If that happens, the Dow could go up to 19,000. If I see that, I'm going to sell and/or short the market come hell or high water. That's my resolution. I always tell people, it's better to get out of a bubble a little early than a little late.
Chen Lin: The low oil price is here to stay for a while and my plan for 2015 is to focus on companies that can do well at lower prices. Pan Orient Energy Corp. (POE:TSX.V) and Mart Resources Inc. (MMT:TSX.V) are my top holdings in energy companies and I have high hopes for both stocks in 2015.
Kal Kotecha: My resolution for 2015 is to bet on junior mining stocks while it is still the most undervalued market in the world. This is just like 2008 all over again. I try to keep emotion out of the decision-making process and focus on the fundamentals and the valuations of the individual companies. I compare the downside risk with the upside potential and what I could make by putting the money in a savings account. The bottom line is that this is how riches are made.
Frank Holmes: Tough markets can take a toll on the intellectual and emotional confidence of anyone in this industry, but tough times don't last forever, tough people do. With that, my investment resolution for 2015 is to have tougher love for the business. A few ways I plan to do this is to hold management accountable for what they control, and also to have the sensitivity to recognize things like poor government policies because government policies are a precursor to change.
David Morgan: My resolution is to strive for balance in my life and in my investments. I recommend that people be only 10–20% in the resource sector. That way they can have exposure to lots of investing options.
One way to ensure balance is to put in place trailing stops that force you to take profits. Investors have to reach inside to determine what levels of risk they can afford and weigh that against the volatility of the specific stock. It is a bit of an art, but it is the best way to be successful.
Doug Casey: I don't put much store in New Year's resolutions. But on this topic, I'd say there's just one right now: Conserve capital. That's going to be hard if the current worldwide asset bubble bursts. I hope to ensure I do that by being extra cautious about getting into any new deals, especially illiquid deals.
Brent Cook: I resolve to play more beach volleyball. I also will try to be more disciplined in my investment expectations—particularly when it comes to when I buy and sell. I know that more than 90% of the junior mining companies out there will fail, so I try to look for the fatal flaw early and get out of the way. If I don't find a flaw, that is when I know to buy in and then buy more. This is my money I am investing, so I have to be critical.
Chris Berry: I don't make New Year's resolutions but instead go back to the guidelines that I have set for myself with respect to investing in the commodities markets. I review these each quarter and add or amend as necessary. This allows for flexibility not so much in investing style but in how I approach different opportunities in the metals. To me, investing is more about managing risk rather than generating returns and the guidelines I have set up are designed to aid in this approach.
Keith Schaefer: Be disciplined in taking losses. My biggest loss in 2014 was actually a stock I bought in 2011 and held on for too long, just thinking management couldn't get any worse, that the company would perform eventually. But of course it didn't. The chart was telling me to sell and I didn't. Shoot your dogs quick!
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1) JT Long compiled this article for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this article: None.
2) The following companies mentioned in the article are sponsors of Streetwise Reports: Pan Orient Energy Corp. and Mart Resources Inc. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
3) Chen Lin: I own, or my family owns, shares of the following companies mentioned in this article: Pan Orient Energy Corp. and Mart Resources Inc. I personally am, or my family is, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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