The Three Keys to This Billionaire's Investment Success

The three keys to this billionaire's investment success... This trait creates spectacular long-term investments... Your highest-conviction stocks should always have this... What to do when your thesis doesn't work out... The great 'retirement reset'...

At age 16, serial truant Herbert Wertheim was given two options...

As a teen, Wertheim struggled in school. He found reading difficult. Though he thinks it was a case of undiagnosed dyslexia, his teachers in the 1950s were convinced he simply wasn't working hard enough.

An abusive home life only compounded Wertheim's problems. On a pivotal day in 1955, he stood before a juvenile judge, who offered him the choice between living in a youth reformatory until he turned 18... or enlisting in the U.S. Navy until he was 21.

Wertheim knew he had only one real option. So he chose the latter – a wise move that set him on course to become one of the greatest investors you've never heard of.

Much to his surprise, the military provided the support system he'd never had... In his words, the Navy became his "mother and father and family." There, he also discovered he had a superior aptitude for math, a passion for engineering and innovation, and an interest in investing.

After his discharge from the Navy in 1960, Wertheim's work on vision systems at NASA led to a career in optometry. He developed a passion for visual research, prompting the launch of his company, Brain Power. Decades later, the company holds dozens of patents and has become the world's largest manufacturer of optical tints used to color sunglass lenses.

Now almost 80, Wertheim has revealed how he boosted his investment performance over the years...

In today's essay, I (Mike Barrett) will share these insights with you.

Earlier this month, in the May 2 Digest, I explained that people who see what others don't are often the product of a unique combination of experiences and interests. This is also true of Wertheim.

Wertheim understands firsthand how valuable a company's intellectual property can be. After all, the company he launched as a side job in the 1970s has remained the largest manufacturer of its kind decades later for this exact reason.

Today, he's worth billions – Forbes currently lists him as the 962nd-richest man alive – in part because he learned to apply the same principle to his investments.

In short, he found that the durability of superior intellectual capital creates spectacular long-term investments...

When Apple (AAPL) went public in 1980, Wertheim bought shares. Same with Microsoft (MSFT) in 1986. More than 30 years later, his combined roughly $350 million position in the two tech giants is a testament to the durability of their highly valuable intellectual capital.

A little more than a decade ago in Extreme Value, my colleague Dan Ferris told subscribers to buy another company with superior intellectual capital: Automatic Data Processing (ADP). The company is the dominant force in payroll outsourcing, serving more than 740,000 customers globally. Readers who took our advice are currently up more than 540%.

Dan and I are always on the lookout for established companies with superior assets and durable competitive advantages. And my colleagues at Stansberry Venture Technology and Stansberry Innovations Report specialize in finding lesser-known companies with extraordinary intellectual capital long before others do.

Wertheim's second valuable insight was that exceptional management breeds high investment conviction...

Back in 1990, Larry Mendelson was appointed chairman and CEO of aircraft-parts manufacturer Heico (HEI) following a proxy fight.

Mendelson wanted control of Heico for one reason: He believed he and his two sons could run it better as a family business.

Boy, was he right... Every dollar invested in Heico back in 1990 is now worth about $339. In other words, shares have compounded 23% per year, trouncing the market's 7% average return over the same period. As Mendelson once quipped...

I get paid $1 million a year in salary, but if the stock goes up $1, my family makes $7 million. If it goes up $10, we make $70 million. Which do you think I care about more, my salary or the stock?

Mendelson and his two sons own about 19% of Heico shares. But the largest individual shareholder is Wertheim. He owns roughly 17% – more than mutual-fund giant Vanguard.

The two men have been friends for four decades. Wertheim knows Mendelson and his family to a degree others can't. His confidence in their business instincts and integrity have given him the conviction to make Heico his largest holding, worth about $800 million today.

It's rare for investors to know a management team to the degree Wertheim knows Heico's...

My colleague and friend Dan Ferris is the exception.

He has known key members of three exceptional management teams for years. It's no coincidence these businesses are also among our highest-conviction ideas.

Like ADP, one of them has been in our model portfolio for a decade. And I'd be surprised if all three companies weren't still in there a decade from now.

Wertheim's third key insight is one that longtime readers will be familiar with...

Give your ideas time to work, but cut your losses when they don't.

Good investment ideas often take time to work out. Many of Extreme Value's biggest winners – including Stansberry Hall of Fame recommendation Constellation Brands (STZ) – actually declined before eventually taking off.

Wertheim recently said he's making a long-term bet on industrial conglomerate General Electric (GE) – a stock that has lost two-thirds of its value since 2017. He thinks its stellar patent portfolio in 3D printing will become far more valuable over time.

Engineers can now sit at a computer and design complex metal parts, then print them out on sophisticated 3D printers. The potential is massive. At its Additive Technology Center in Ohio, for instance, GE used 3D printing to improve jet-engine performance by combining 855 engine parts into 12. The company also recently filed a patent application for a process that uses blockchain to track and authenticate 3D-printed objects.

The future is bright for 3D printing, and given its broad patent coverage and know-how, GE will be a huge beneficiary. What we don't know is when the promise of 3D printing will actually pay off. Thus far, it has failed to live up to the hype... And it certainly hasn't saved GE from a litany of other problems, given the meltdown in its stock the past few years.

At one time, Wertheim had a big stake in smartphone maker BlackBerry (BB), who saw its market share vanish thanks to Apple and Google parent company Alphabet (GOOGL). After watching his huge position diminish in value month after month, he finally sold.

Nobody gets it right every time... Not even Wertheim. Despite his incredible success, he has also learned the hard way not to let losses get out of hand. If his GE thesis doesn't work out before the losses get too steep, Wertheim knows it'll be time to move on.

Every investor, regardless of age or experience level, would do well to embrace the keys to Wertheim's tremendous success. If you're looking for stocks worthy of holding indefinitely, pay close attention to the durability of these companies' intellectual capital... make exceptional management teams your highest-conviction investments... and give your ideas time to work, but don't hesitate to sell when they don't.

If you're retired or planning to retire in the next few years, Wertheim's third insight might be most important to you...

Millions of investors are vulnerable to losses in the bear market I expect to happen over the next couple of years. The typical mistake many will make is to sell winners and let losers destroy capital in hopes they'll come back.

But my friend Dr. Richard Smith has developed a product that can completely eliminate this problem from your portfolio. It's called TradeStops, and it automatically lets you know when it's time to sell a losing position to minimize further risk of loss... or take a big winner off the table before your profit disappears.

I believe every investor should use TradeStops. It's the only product of its kind, and it fixes a problem every human being has when it comes to managing his own money: putting a disciplined sell strategy in place. It's a simple fix for a huge problem... and is almost guaranteed to improve your investment results.

Tonight, at 8 p.m. Eastern time, Richard will host a free online seminar in which he'll highlight the massive "retirement reset" he's expecting. He's also unveiling a brand-new, user-friendly version of TradeStops. I suggest you tune in for the event. You can save your seat right here. (He's also giving away a free copy of his new special report, "Retirement Mistakes We All Make," for anyone who registers.)

New 52-week highs (as of 5/20/19): General Mills (GIS), Hershey (HSY), MarketAxess (MKTX), T-Mobile (TMUS), and Travelers (TRV).

Have Richard's TradeStops tools helped you protect your wealth? We'd love to hear your stories. Send your thoughts to feedback@stansberryresearch.com.

Regards,

Mike Barrett
Orlando, Florida
May 21, 2019