Masters Series: The Courage to Get Rich
Editor's note: Today's weekend Masters Series essay features a classic piece of investing insight from Dr. Steve Sjuggerud.
Steve has been the editor of True Wealth since he launched the advisory more than a decade ago. In that time, it's become one of the most popular newsletters in the financial publishing industry, thanks to Steve's exceptional track record and plainspoken manner of explaining vital investing concepts.
Behind Steve's success is his core belief that making big gains in the market does not require taking big risks… In the following March 2006 essay, originally published in Stansberry & Associates' free e-letter DailyWealth, Steve shares one of the key strategies he uses to make low-risk, high-reward investments…
The Courage to Get Rich
By Dr. Steve Sjuggerud
Rick Rule lives well...
He spends the winter in New Zealand (because it's summer there). He spends the summer in Vancouver, Canada. And in fall and spring, he's in Southern California.
In New Zealand, Rick has over 1,000 acres, on the ocean. I visited him there over the weekend. While my kids played on the beach, Rick told me:
"Steve, I've got to thank you... a few years ago, you told me something that's really made me a lot of money."
Rick is one of the smartest guys I've ever met. After 30-plus years in the investment business, most of it spent running his own brokerage/investment banking business, he knows money. I'm comfortable saying Rick knows as much about making money as anyone I know.
Rick has a lot more experience than me. But we're both in the same game... figuring out how to turn money into more money. The game is hard, but it's a lot of fun to both of us.
"So what was it that I told you, Rick?" I asked him on the beach.
"I remember it plain as day... It was at an Investment U conference. You told me, Rick, you've got to have the courage to be right."
Maybe he remembered that because it's not very often successful money men like Rick get told how to do things. (It's even rarer if they actually take the advice.)
Rick went on:
"Steve, you were right. For decades, I've bought things at 50 cents on the dollar, and I've sold when those things approached fair value. You told me that I was leaving a mountain of the gains on the table... that you never know how high something could go... and that you can simply use a mental trailing stop to both protect yourself and more importantly, to potentially get out at a much higher price.
"Steve, you told me to have the courage to be right."
To me, if Rick is doing this now, he's the complete investor. He's got it all...
Better than almost anyone, Rick knows how to buy valuable assets cheaply. Now, he's using a technique to really maximize the value of his hard work. He has the courage to not only make good money – but to make even more – on his ideas.
At this point, I don't think Rick really needs much more money. I think he just loves the game, like I do. It just happens that the scorecards in this game are the account values... both his and his clients.
The game is simple. As they always say... you buy low and sell high.
The technique we can use to sell high is a simple idea called a trailing stop.
As a rough rule, I recommend using a 25% trailing stop in my newsletter True Wealth. So, if we own a stock at $10, and it goes to $20, and then falls by 25% down to $15 a share, I get out. It's down 25% from its high since I bought it.
As an example, back in 1999, my colleague Porter Stansberry recommended buying shares in a company called JDS Uniphase (JDSU) in the newsletter I was heading at the time, The Oxford Club. The stock soared over 1,000% before falling by 25%. We sold when this happened, pocketing around 900% gains. The stock kept falling, right back down to where it started.
If we had held on after JDSU started falling, we wouldn't have made a dime. But we had the courage to let it ride... we had the courage to get rich. We had our trailing stop strategy in place and the discipline to follow it and get out.
Of course, they don't all work out like this. And you can vary the strategy, like tightening up the stop so you don't have as much downside risk. But the point remains:
When one of the world's smartest investors thanks me for a tip I gave him that has made him a lot of money, it's probably worth sharing with you.
You've got to have the courage to be right... to let your good calls ride. As I said to Rick a few years ago:
You never know how high an asset's price can soar... so you can simply use a mental trailing stop to both protect yourself and more importantly, get out at a much higher price.
The courage to be rich... to let a big winner ride... is just as important as the courage to be right in this game.
Good investing,
Steve
Editor's note: In True Wealth, Steve specializes in finding safe, contrarian investments that have been overlooked by Wall Street. And in the most recent issue, he showed subscribers how to safely earn 8% interest from the government in this zero-percent world. To gain immediate access to this recommendation – and to learn more about a subscription to True Wealth – click here.