'Don't Be One of Them'
Editor's note: Most Americans are unprepared for the uncertainty that's about to hit the markets as we speed toward the presidential election...
But according to our founder, Porter Stansberry, you can position yourself to profit – even while others are losing money. Today, we're revisiting an excerpt from a July 2023 issue of The Big Secret on Wall Street at Porter's company, Porter & Co. In it, he reveals why one type of investment should be the cornerstone of your wealth-building strategy...
When asked what we should do about the poor, Ayn Rand offered this sage advice: "Don't be one of them."
You have the same option when facing our country's looming financial collapse and the economic and political chaos that will follow.
Just don't be one of them.
We're in an era of speculative asset mania, unsustainable debt levels, and structurally high inflation...
Ironically, though, while crisis spells doom for most people in our country – anyone foolish enough to believe what the government tells them – for those few who understand economics and investing, there has hardly been a better time in history.
That's because we'll see the rise of an unstoppable force...
The more money the government prints, the bigger the relative advantage of high-quality, capital-efficient businesses – companies that have the ability to raise prices without the corresponding increase to their own costs.
When societal and monetary chaos is in the air, this strategy shines. And though we can't predict exactly when these periods will arrive, we can identify times – like today – when they are far more likely to occur...
This philosophy was perhaps best summed up by Warren Buffett – chairman and CEO of Berkshire Hathaway and the world's most successful long-term investor – in his 1996 letter to investors...
Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, ten, and twenty years from now. Over time, you will find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock... Though it's seldom recognized, this is the exact approach that has produced gains for Berkshire shareholders.
In other words, we aim to buy ultra-high-quality businesses at fair prices and hold them for the long term. This strategy works in virtually any economic environment. But... in a roaring inflationary environment, it works best.
Buffett describes these kinds of companies as "Inevitables."
These businesses have such powerful internal economics and entrenched competitive advantages that they are likely to continue to dominate their industries – and compound investors' wealth at high rates of return – over the long term... regardless of what is going on in the economy or markets. The key to success is simply not to pay too much for them.
In that same letter, Buffett cited the examples of Coca-Cola and Gillette – two of his favorite long-term investments – to highlight these traits...
Forecasters may differ a bit in their predictions of exactly how much soft drink or shaving-equipment business these companies will be doing in ten or twenty years... In the end, however, no sensible observer – not even these companies' most vigorous competitors, assuming they are assessing the matter honestly – questions that Coke and Gillette will dominate their fields worldwide for an investment lifetime. Indeed, their dominance will probably strengthen. Both companies have significantly expanded their already huge shares of market during the past ten years, and all signs point to their repeating that performance in the next decade.
Beloved chocolate maker Hershey is another classic example of this kind of business. Longtime followers of my work may recall I initially recommended shares in November 2007.
That was right at the last big peak in stock prices before the global financial crisis – arguably one of the worst times to buy stocks in modern history. Yet readers who followed my advice still did incredibly well.
Like most companies, Hershey's share price did move lower during that time (though it fell significantly less than the broad market). But its underlying business weathered the crisis without a hitch. And it has since produced total returns of 617.7% (12.4% annualized), compared with the S&P 500 Index's total returns of 435.2% (10.5% annualized).
The reasons behind these extraordinary returns are as simple as they are certain: Hershey is a remarkably high-quality, capital-efficient business. And I recommended buying it when it was trading at a reasonable price.
The hallmark of our approach to investing is our confidence in great companies to perform well for investors despite challenging macroeconomic conditions.
Most investors would do much better if they paid far less attention to the broad market and the economy and simply focused on following Buffett's guidance above.
That doesn't mean we don't pay attention. The key is that while macro-worries generally don't concern us as long-term investors, they can create tremendous opportunities. As Buffett himself has noted, "Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold."
These rare periods of turmoil can offer patient (and prepared) long-term investors the opportunity to buy world-class businesses at unusually low prices while others are panicking.
This combination can produce truly mind-boggling long-term returns. And given the unprecedented risks facing the economy and the markets today, we believe the coming opportunities could be among the best in history.
While most investors understand this strategy, few investors have the fortitude in their hearts to step up and buy when others won't.
That's why we believe it's important to keep your "shopping list" ready.
Ideally, you'll have been following a business for years and will know it inside and out – so you'll have the confidence to buy when others won't. And, as you'll discover if you become a lifelong connoisseur of great businesses, the trick to achieving outstanding long-term results lies in only buying when the price is reasonable.
Regards,
Porter Stansberry
Editor's note: No matter who wins the White House, Porter says the divide we're about to see in the market could devastate the wealth of millions of Americans. This is your chance to be on the winning side...
That's why Porter recently went on camera to share an urgent message. In it, he explains the unstoppable shift that's about to hit the markets this election season... and how you can set yourself up for potentially the most profitable four years of your life – including his No. 1 investment to prepare now. Get the details here.
Further Reading
"If an investor does decide to invest in riskier assets, he should own super-safe and prudent investments as well," Porter writes. Diversifying your risk exposure is crucial to building a well-balanced portfolio – and avoiding big losses. And four key principles can enhance your allocation strategy... Read more here.
"Your first task as an investor is to identify sources of fragility in businesses and make sure you have minimal (and preferably zero exposure) to them," Dan Ferris writes. In a recession, you need to avoid weak businesses. Here's how to find companies that succeed when their competitors fail... Learn more here.