Editor's note: It's the No. 1 rule for handling your capital in uncertain times like today...

You must learn to always diversify your assets.

But that isn't the only piece of advice from Extreme Value editor Dan Ferris that can help you become a better investor in the long run...

In today's Masters Series essay – adapted from a two-part Digest series from June 2019 – Dan dives into the "ice cream shop lesson" that he learned nearly 40 years ago. This piece of wisdom has helped Dan identify some of the biggest winners of his decadeslong career...

The Ice Cream Shop Lesson: How to Find Your Next 600% Winner

By Dan Ferris, editor, Extreme Value

One of the most important business lessons I ever learned came from the late, great Lee Garfield...

It may not seem profound, but I'll never forget what he told me one day when I was working in his ice cream shop in the early 1980s...

Even if people can't afford a nice vacation or a new car, they'll still shell out a few bucks and take the family out for ice cream.

Lee opened Lee's Ice Cream Factory, the iconic Baltimore business where I worked my way through college, in 1979. His first store was a 10-minute walk from Towson University, where I studied music in the early 1980s. We made ice cream in small batches right there in the store.

Back then, I knew little about business or investing...

Lee was hanging out behind the counter one day when he told me why he chose to open an ice cream store instead of some other type of business. He had dreamed of it since he was a kid, where the ice cream he ate at Baltimore's now-defunct Gwynn Oak Park amusement park created a lasting childhood memory.

Then, Lee told me he didn't want a business that cost too much (like a restaurant), or one where you had to own a bunch of inventory (like a bookstore). All we needed was an ice cream machine or two for each store, a few freezers, a milkshake machine, and dirt-cheap items like spoons, cones, and cups. It was a great idea, and folks have always loved ice cream.

He knew the business could weather economic recessions because the product cost so little and because people would still buy it even when they couldn't afford more expensive luxuries, like a family vacation.

The lesson didn't just stick with me...

It also helped me find some of the biggest winners in Stansberry Research history.

In the wake of the financial crisis, investors were running fast from companies that had a lot of debt on their balance sheets. One of those companies was household-products company Prestige Brands Holdings (PBH) – which is now known as Prestige Consumer Healthcare.

Prestige's market cap was less than $260 million, and it was sitting on $378 million of debt. Most investors don't like it when a company's debt exceeds its total market equity value. They think it means the company has something seriously wrong with it.

Even worse in the eyes of many investors, the share price had fallen more than 70% from its 2005 highs due to the financial crisis bear market. I knew Prestige had a lot of debt, but as I told Extreme Value subscribers back then...

Prestige is not a financial fortress. It has much more debt than cash. But if you look at the financial risks more closely, you'll see the stock isn't as scary as the market seems to think.

It was clear to me that Prestige was an excellent business. It owned popular over-the-counter health care brands like Compound W wart remover, Clear Eyes eye drops, and Chloraseptic sore throat spray.

Better still, it owned only the brands, not the manufacturing or distribution. That dramatically lowered the company's expenses and raised its profit margins and returns on capital.

I knew I had found something special... It was like a royalty on a bunch of low-cost consumer products, some of which had been around for several decades.

Just like Lee had taught me decades earlier, even if folks were finding it tough to make ends meet, they'd still shell out a few bucks to get rid of warts and soothe dry eyes and sore throats.

I shared the nitty-gritty details about Prestige and the over-the-counter health-products industry, including the All Commodity Volume Food Drug Mass Index ("ACV"). An ACV of 90% means a product is on the shelf in 90% of the stores where products of that type are sold. At that time, I noted that Chloraseptic had a 96% ACV, and that 11 of Prestige's 15 brands had a 60%-plus ACV.

With a portfolio of market-dominating brands and no distribution or manufacturing costs, Prestige had low expenses and tiny capital requirements. As a result, it gushed free cash flow (another important metric we've educated readers about over the years). On sales of $322 million, it was generating $63 million a year in free cash flow – a thick 19% margin.

In Extreme Value, we recommended the stock in May 2009 at $6.23 per share. As the financial crisis passed, the stock did well, doubling in about two years.

In February 2012, with the stock trading around $13.50 a share, pharmaceutical firm Genomma Lab tried to buy Prestige for $16.60 per share. The stock soared to that level immediately, and Extreme Value subscribers were up more than 160%.

But it was a lousy offer... I told subscribers I didn't expect it to close and that if the offer was withdrawn and no competing offer appeared, the stock would fall back to its previous levels.

Sure enough, the deal never went through and the stock fell to $13.24 in the aftermath. We continued to hold and watched it climb all the way to $32 a share by November 2014.

That's when we recommended closing the position for a 406% profit. Until earlier this year, when other high-returning positions eclipsed it, Prestige was one of the biggest winners in Stansberry Research history... listed in the Hall of Fame at the bottom of every Digest.

My experience with Prestige reinforced the lesson I learned while making ice cream in the 1980s...

The key is to own businesses that sell essential, low-priced products.

They're "Lee's Ice Cream" businesses. Even if customers can't afford an expensive home or a fancy new car, they can always find a few bucks for a scoop of ice cream, an over-the-counter health care product... or a cocktail.

In June 2011, a sharp sell-off and large debt load were keeping investors away from wine and beer giant Constellation Brands (STZ).

When I recommended shares to Extreme Value subscribers in June 2011, they traded for around $20 – more than 30% off their previous highs.

The company had borrowed to buy up one wine company after another. Its debt load peaked at more than $5 billion in 2007 after an eight-year acquisition spree, as Constellation bought more than a dozen wine brands from around the world. Management had overestimated its ability to take on debts, and the company logged operating losses in 2008 and 2009. As I told subscribers in that month's issue...

Then management surprised us... by demonstrating a superior understanding of its business, its predicament, and doing the right thing. It decided to sell its less profitable assets, pay down debt, and turn the focus from growth by acquisition to growing through its most profitable premium wine brands... all the excellent brands it had bought during its decadelong acquisition spree.

We showed subscribers the excellent business that was buried under a $3 billion pile of debt...

Constellation was the No. 2 overall wine producer and the largest premium wine producer in the world. It was also the biggest beer importer in the U.S. through its ownership of Crown Imports, which has exclusive rights to Corona. The company generated more than $500 million in free cash flow the year before we recommended it, and management expected between $600 million and $650 million a year after that.

The market saw a company that had grown too fast and still had more than $3 billion in debt in 2011 – roughly 10 times its 1998 debt load. But we saw a cash-gushing, World Dominating business in one of the best industries for investors that had already paid down $2 billion in debt.

It was Prestige all over again, and Lee Garfield's words spurred us on... But as was the case with Prestige, Constellation faced its own set of challenges.

In June 2012, global beer giant Anheuser-Busch InBev (BUD) agreed to buy Mexican beer maker Grupo Modelo. To satisfy antitrust regulators, Grupo agreed to sell its 50% stake in beer importer Crown Imports to Constellation. After the transaction closed, Constellation would own 100% of the No. 1 beer import company in the U.S. and have exclusive rights to the Corona brand in the U.S., including the right to create new products.

The market loved it, and Constellation's share price nearly doubled, from around $22 to $39 by the following January.

Extreme Value subscribers were up more than 80% in about a year and a half, but the drama wasn't over...

Soon after that, AB InBev announced the deal was off, meaning Constellation would no longer be able to buy the 50% of Crown it didn't already own. Constellation's share price fell 20% in four trading sessions.

We continued to recommend holding the stock. Just like with Prestige, we believed investors would compound at high rates by holding onto a great business over the long term.

About two weeks later, the deal was back on. We held the stock for another few years, and finally recommended selling in November 2016 for a 631% gain (including dividends). It remains the sixth-biggest winner in Stansberry Research's 20-plus-year history.

As you can see in the charts below, both stocks performed poorly right before we recommended them. They were hated, and for good reason. But we knew the fears were overblown... that investors were ignoring a pair of great, cash-gushing businesses that would be around for decades to come.

Our job is to know businesses. That's exactly what Lee Garfield meant when he taught me to focus on simple businesses that sold essential, low-cost products.

Here's the price chart for Constellation before we recommended it...

And here's the chart for Constellation after we recommended it...

Now, here's the Prestige chart before we recommended the stock...

And finally, here's the chart for Prestige after we recommended it...

Extreme Value subscribers have earned triple-digit returns on other companies I found with Lee Garfield's sage advice, like cigarette makers Altria (MO) and Philip Morris (PM) for 174% and 113%, respectively... beermaker AB InBev for 150%... and clothing retailer Blair for 111%.

I could show you the same pair of charts for every single one of those stocks – down or sideways price action before we recommended them... and up, up, up after.

But our big wins weren't just limited to "Lee's Ice Cream" businesses. Lee Garfield's advice has also helped me lead Extreme Value subscribers to other big winners, too.

It allowed me to spot essential businesses intertwined in our daily lives, even if users weren't as aware of them as they were of beverages or medications.

Payroll processor Automatic Data Processing (ADP) is a good example...

It's the third-highest-returning stock among all of Stansberry Research's current open positions, up roughly 490% (including dividends and spinoffs).

ADP processes about one-sixth of all the paychecks in the U.S. It's the largest company of its kind. It takes in funds from your employer and sends your tax withholding to local and federal tax agencies and payments to benefit providers. Then, it deposits your net pay into your account.

I first recommended ADP in October 2008 – during the depths of the financial crisis. That didn't scare me at all. As I told Extreme Value subscribers in my initial recommendation...

I love bear markets. Without them, my job would be damn near impossible. Without times of great financial turmoil, it's hard to make a lot of money in stocks. We need bad times to buy stocks cheaply enough to make us rich over the long term.

With newspaper headlines stoking fears of a global financial meltdown, I showed my subscribers that ADP was a phenomenal business...

ADP charges a royalty on the movement of money from employers' pockets into employees' paychecks... and from there to insurance companies and tax collectors. Whether it's people or money, when transportation is necessary, somebody has to build the road to accommodate the travelers. ADP is a toll road in the global financial system.

ADP collects employer funds and holds them overnight in its bank account, where it earns interest. It moved more than $2.2 trillion of client funds last year and earned $545 million of interest on those funds. That's $545 million of pure cash profit that requires no extra expense or capital investment. Like I told Extreme Value subscribers back in 2008...

Imagine all the thousands of people at each company, getting a paycheck every week or two. ADP gets a piece of that action and collects interest on the tax money every time.

Like Prestige Consumer Healthcare and Constellation Brands, investors weren't at all interested in ADP when we recommended it. The stock was trading more than 30% off its 2007 highs. Lehman Brothers had gone bankrupt less than a month earlier. Nobody was interested in buying anything, let alone another financial company.

Here's what the share price did before we recommended it...

I described ADP as "one of the most financially sound companies of any kind in the world." It had $1.7 billion in cash and just $52 million in debt. It was obvious ADP could never have the kinds of problems the big banks were having.

We recommended shares in October 2008, and we're still in it today. In 2014, ADP spun off its auto-dealer services business, CDK Global (CDK). Subscribers made more than 80% in a little more than a year with that part of the position.

And here's how ADP has performed since we recommended it...

As you can see, it pulled back a bit during the COVID-19 pandemic (along with almost every other stock in the market). But overall, it has proven to be a massive long-term winner... and we believe it will continue to be for years to come.

In August 2018, we recommended another classic Lee's Ice Cream-style business...

We told Extreme Value subscribers why coffee-shop giant Starbucks (SBUX) was a no-brainer back then. Even if folks can't afford fancy new clothes or a $1,000 smartphone, they're still willing to shell out a few bucks for a cup of coffee.

We applied our price-implied-expectations model to Starbucks and found that its share price assumed zero revenue growth for the next few years. We thought that was way too pessimistic, especially since we knew management was planning to continue expanding the business in China, a market with massive growth potential for coffee shops.

The stock is up about 60%, including dividends. We expect to recommend holding it for many years to come.

I've learned many lessons over the years... But few have made the deep, lasting impression Lee Garfield made on me nearly four decades ago.

That lesson has helped me see past all the bad news that tends to scare other investors away from stocks that are priced to become massive, triple-digit winners.

It's a lesson you can take to the bank... I believe Extreme Value subscribers are going to be extremely happy with the results over the next several years by following this simple advice.

Good investing,

Dan Ferris

Editor's note: Thanks to Lee Garfield's advice, Dan has routinely led Stansberry Research subscribers to big winners. But he's also good at dishing out his own words of wisdom...

And today, Dan wants to share a critical message with subscribers like you. He believes millions of Americans are getting ripped off right now... and sadly, they don't even realize it.

It's not from COVID-19, rising unemployment, or inflation... but rather, an enemy you likely know well. Dan just put together a special presentation to explain it all. Watch it right here.