Be Your Own Financial Boss
David Daglio talks life on and off Wall Street... 15 years and 15,000 meetings about the same question... 'How'd you do last quarter?'... Individual investors' advantage... Your permanent capital... The best time to sell a straw hat... Doc's favorite trading strategy...
Take it from someone who has had his hands in $500 billion of assets...
Being responsible for so much money has pluses and minuses, and freedom from that responsibility has advantages. So says David Daglio, the former chief investment officer at BNY Mellon, where he helped lead a team that oversaw $500 billion of investments.
Dan Ferris and I (Corey McLaughlin) interviewed David on the newest episode of the Stansberry Investor Hour podcast, which went live last night, and it was a real treat. He spent 22 years at Mellon, then last year founded his own (relatively smaller) asset management firm, which was then quickly acquired by a multibillion-dollar multifamily office...
So, David has fresh, firsthand experience and knowledge about how the "big guys" operate. And, as it soon became clear as we talked, he also shares many of our interests at Stansberry Research in terms of guiding individual investors with a "contrarian" bent.
That's how he started investing in his 20s in his free time when he was working as a management consultant. And with two decades of experience at one of the biggest banks in the world behind him, the approach still colors his thinking now, in his new role as chief investment officer of wealth-advisory firm TwinFocus...
I think I'm at the perfect-sized firm today. The disadvantage of being at a very large firm is sometimes we see great ideas... but if we can't put $1 billion to work, it's not worth doing. Even when I hear from the larger investment banks, most of their ideas start with $1 billion ideas.
Our total client base today is $8.5 billion, so that means if we find an idea where we can put $10 or $20 million to work and get good returns, we can, but we're also large enough so we get inbound calls from every single firm in the world... But I have the ability to be nimble.
In other words, the less money you are "required" to put to work, the wider the investment universe can be, and the more flexible you can be. And while David was talking about the difference between the biggest of asset managers and their smaller rivals, what I want to tell you today is that the same idea goes for individual investors...
Life on and off Wall Street...
With all this in mind, I asked David about the advantages and disadvantages of working on Wall Street versus someone like you or me who is "doing this for themselves." His answer was terrifically insightful – and encouraging.
No doubt those who work on Wall Street, or its proverbial forms across the country and world, have certain advantages. As David said...
The ability to do deep fundamental work really rapidly was staggering... If anything, our problem at these big firms was figuring out what to listen to.
But individual investors, he said, can have an advantage by actually having less information to sift through and determine what sources they trust and fit their unique goals and investment style. As he said...
I think the advantage a retail investor has and, frankly, I have in my personal account as well, is I don't have a boss. The biggest problem with being a portfolio manager – I was for 20 years running small-cap hedge funds, etc. – I used to say I didn't have a boss, but the practical reality is my top 100 clients were my bosses.
Every quarter, they asked me the same question, "How did you do last quarter?" And I would say, "I'm going to tell you how I did last quarter, but we're investing in ideas that we think are great ideas for the next three to five." It took me 15 years and probably 15,000 meetings to get the majority of my clients to stop asking about the next 90 days. I was in a privileged position.
Most, if not all, people at good firms have an enormous amount of pressure to perform in the short run, and we can see that in the market today...
He went on to talk about the number of active professional portfolio managers who were "underweight" chipmaker Nvidia (NVDA) a year ago and how that number has dwindled today because of the "fear of missing out." As he said...
That's what defines markets, but I think as individual investors, you can be much more pragmatic, much more long-term, much more thoughtful because you don't have so many people asking about your last 90 days of returns.
You can watch the entire interview here on YouTube. Like I said, David – who also spoke at our annual Stansberry Research conference last year in Las Vegas – shared tremendous insights that I think are worth listening to...
(For instance, the episode's title refers to the idea of buying "straw hats in winter" – assets that go on sale when no one is buying them. It's like getting your Christmas decorations at half price from the clearance bin in January.)
You can also listen to the full audio version of the podcast at InvestorHour.com or wherever you get your podcasts. (In the full episode, Dan and I also discuss the Stansberry Research editors' conference we attended on Maryland's Eastern Shore last week.)
Over the years, Doc has talked about the advantage individual investors have, too...
When I started working for Stansberry Research several years ago, I had the good fortune of editing some of Dr. David "Doc" Eifrig's publications, and I learned so much from simply reading the drafts that he and his team submitted.
In one issue of Doc's Income Intelligence newsletter back in 2021, he wrote about the fact that individual investors enjoy the "superpower" of "permanent capital" – their own money to work with.
In other words, folks who work at major investment firms live in constant worry about clients withdrawing their funds, which can dictate their behavior. As Doc wrote...
Put yourself in the shoes of a professional portfolio manager. Each year – likely each quarter – he or she needs to keep up with the market to maintain the clientele.
If the market returns 8.2%, 5.8%, 11.7%, or 8.5%, like it has done in the past four quarters, the professional better match or beat those returns. Otherwise, the money starts flowing out.
But this leads to perverse – and destructive – incentives like performance chasing and the inability to step back from the market.
Look, everyone knows this market is crazy. We all understand that stocks have premium valuations that can't be sustained indefinitely... And many have valuations they can't conceivably grow into.
But if you have to make that quarterly number, you have no reason to take your foot off the gas pedal. If the richest, most expensive stocks keep rising and driving the market, you better own them, just like everyone else.
If you decide to worry about a bear market and apply a safer investment approach, you get left in the dust. The money flows out and you lose your job.
The faster and more wildly the market rises, the bigger this problem becomes. That dynamic encourages portfolio managers to keep buying the big performers, fueling the rally even further.
Individual investors may worry about their own internal short-term emotions and performance. But as Doc said, they don't have to worry about this lure of the quarterly number.
But here's the point: You have permanent capital...
It's your money, your capital, and it's not going anywhere you don't want it to. So you can behave as you see fit. As Doc continued...
You shouldn't care about relative performance or quarterly numbers. If you take your foot off the risk accelerator, you may not match the market in its strongest quarter. You can't keep outpacing the market without taking the full-blown risk. Reducing risk will generally lead to better returns – but not this quarter. Maybe not even this year. But you have the ability to wait it out.
You can invest through the cycle of ups and downs...
You can tone down your risk and earn a positive absolute return on your capital, while potentially underperforming, relative to the market. But when you review the cumulative returns over time, it will be worth the short-term sacrifice of greed...
In other words, you should be willing to hold investments that promise solid returns, even if they aren't the hottest holdings in today's market. That's because your performance is beholden to no one's expectations but your own.
As we mentioned yesterday, Doc speaks from a position of experience.
Among other things, he worked in the 1980s on the trading desk for the elite investment firm Goldman Sachs... lived through the infamous Black Monday from a front-row seat (then left Wall Street to go to medical school)... and, for the past couple decades, has dispensed volumes of financial and health-related wisdom to hundreds of thousands of Stansberry Research subscribers.
Doc also has one of the strongest track records in the business and frequently earns top grades in our annual Stansberry Research Report Card. Arguably, his most successful publication is Retirement Trader, where he applies a trading strategy that has thrived for decades, no matter the investing environment.
Right now, for example, Doc's on a record streak of 211 consecutive winning trades... has posted roughly 20% annualized returns in each of the past three years... and enjoys a 95% win rate since launching the service way back in 2010.
Doc's strategy allows individual investors to be nimble, to take the "other side" in the market – often opposite the pros – to make money again and again and again on their "permanent capital," based on their goals and timelines.
Much like it makes sense to 'buy straw hats in winter,' it makes the most sense to sell them in summer...
Like selling Christmas decorations in November and December, that's when you can charge a premium. This is the idea behind Doc's strategy in Retirement Trader.
Without getting into too many details (watch this free presentation from Doc for more), when most people think about options, they tend to think of buying them to juice returns. But that comes with higher risk, so it makes sense that, as Doc has told his subscribers...
Today, people think of options as risky. But their real role – dating back to their innovation – is to reduce investor risk.
Stock options are one of the most misunderstood and misused financial vehicles on Earth. The popular press, and even your broker, will tell you options are guaranteed to lead to financial ruin. But it's just not true... if you understand how to trade them.
The way most people use stock options increases the risk to their capital. But our technique uses stock options to decrease the risk to our capital.
With his strategy in Retirement Trader, rather than buying options, Doc sells them, much like an insurance company does for any number of items or property. In times of fear, you can make more money by selling this kind of stock "insurance" to worried investors.
The great thing about the public markets is that individual investors have the ability to do this, and with a smaller amount of capital than larger firms would want to put to work.
The harder part is knowing what you're doing, but Doc has that covered. He has taught hundreds of thousands of subscribers how to use this strategy over the years. Yes, it has to do with options, but as Doc shows, "options" doesn't need to be a scary word.
We've heard from plenty of happy subscribers who have used the Retirement Trader strategy with great success over the years to generate more money during or for their retirement, or even from folks who are simply looking to boost their income.
Doc has his win streak, win rate, and high annualized returns because he can zig when Wall Street is zagging... and has the conviction and opportunity to not to worry about "the last 90 days," as David Daglio put it, but think about the long term.
Far too often, those in the market think only in the short term, and that's why it seems like they can't think around the next corner. Because, often, they can't...
So if you can even begin to consider what's coming next, it's more of a superpower than you might even think. Then if you can put this analysis into action, even better.
This is all a long way of saying you should check out what Doc's talking about now...
His No. 1 favorite trading strategy is not something you hear about in the mainstream, but it is working as we speak, without a single losing trade in four years. You don't do that by following the crowd.
In particular, if you're looking to add to your income in retirement, you owe it to yourself to learn this strategy. But anyone can put it to good use if you're looking for more cash for any reason.
Click here to learn more details right now directly from Doc. In this free presentation, he talks about why this particular strategy is well suited to put money to work for the rest of 2024 – and anytime, really – and how you can get started with it today.
And, if nothing else, let me leave you with this recommendation: Be your own financial boss as much as possible. Because while money can't buy happiness, it can help you find it, and doing things your way might be one of the biggest joys there is.
New 52-week highs (as of 4/22/24): American Express (AXP), Alpha Architect 1-3 Month Box Fund (BOXX), Sprouts Farmers Market (SFM), and Veralto (VLTO).
A quiet mailbag today. Do you have your own story or example about "being your own financial boss"? I'd love to hear it. Send your notes or any other questions or comments you might have to feedback@stansberryresearch.com.
All the best,
Corey McLaughlin
Baltimore, Maryland
April 23, 2024