Be a Permanent Millionaire, Not a Temporary One

79,000 new millionaires in 2023 – or maybe not... The greatest meme stock of all time... The 'apes' are out-ape-ing themselves... Movie theaters peaked in the 1930s... The single most essential skill for all investors... Be a permanent millionaire, not a temporary one...

At least 79,000 new millionaires are living among us this year...

I (Dan Ferris) imagine most of you would like to know where they all came from.

After all, you're reading an investment-focused publication. You've obviously taken steps to get ahead financially. So if there's a way to join this elite club, you should know about it.

We'll start today's Digest with the answer. And it's easy to understand...

The stock market.

But unfortunately for you, the process of becoming a permanent millionaire isn't as easy to understand. You can't just dump money into any stocks and achieve that status forever.

Instead, you need to do something else. It's the single most essential skill for all investors. It's critical if you want to build long-lasting wealth. And today, we'll cover all the details.

But first...

The Wall Street Journal reported on the world's new millionaires this week...

Specifically, in an article yesterday, the financial publication said...

The number of people with at least $1 million in their 401(k) accounts has grown about 25% so far this year.

Some 378,000 retirement savers in Fidelity plans had seven-figure-plus balances as of June 30, up from 299,000 at the end of 2022.

So far, so good. It's always nice to see people doing well for themselves, right?

Not so fast...

You see, so far in 2023, the stock market is just putting most (if not all) of these folks back where they were at the start of 2022.

Remember, the benchmark S&P 500 Index fell about 19% last year. And it dropped as much as 25% from its January 2022 peak to its October 2022 trough.

The tech-heavy Nasdaq Composite Index suffered even worse. It plunged roughly 36% from its November 2021 high through the end of last year.

Due to rising interest rates, the value of U.S. Treasurys also fell more than 30% in 2022.

So these 79,000 folks are probably all old millionaires who lost that status last year. Now, in 2023, they're once again millionaires because the stock market is trending higher.

To that point, UBS and Credit Suisse also released a new report about the world's millionaires this week...

The economists at these two financial giants cast a much wider net than Fidelity. They looked at total wealth – not just retirement accounts.

And they found that 1.7 million Americans lost their millionaire status last year.

In the end, the specific numbers aren't that important. But I hope you see the main point...

A lot fewer millionaires are living in the world today than before 2022.

In early 2021, almost every piece of garbage in the market was hitting an all-time high. Every special purpose acquisition company was making a deal. Every meme stock was soaring "to the moon." And every venture-capital firm was going public at a multibillion-dollar valuation.

Anybody can get rich for a few minutes in that kind of whirlwind.

A lot less of that insanity is going on these days. And I'm sure many of the folks who counted themselves as millionaires throughout 2021 have lost a big chunk of their wealth.

Now, they're firmly back in six-figure territory (or perhaps even less if they bet it all on the wrong meme stocks). They'll probably stay there for longer than they ever dreamed.

And let's face it... They weren't really millionaires to begin with.

If you're only a millionaire when stocks are exorbitantly overvalued, are you really a millionaire?

I bet at least a couple of movie-theater owner AMC Entertainment's (AMC) "apes" are among the new millionaires of 2023...

These days, AMC competes with video-game retailer GameStop (GME) for the title of "all-time greatest meme stock." But that's mostly just because they haven't gone bankrupt yet.

Bed Bath & Beyond (BBBYQ) was in the running for a bit. That quest ended when the home-goods retailer went belly-up in April.

The company has since acknowledged that its shares don't have any recovery value. And yet, millions of shares still actively trade every day.

So some folks in the market are still holding out hope for a miracle. Heck, it's really whatever has longer odds than a miracle. But those people just don't get it.

If you pressed me to make a pick today, I'd have to give the award to AMC. The company always seems to find a way to show us how dumb its management and shareholders are.

Over the past few days, AMC's apes are out-ape-ing themselves again...

As I've mentioned before, shareholders approved a measure to convert AMC's preferred equity units (which trade under the "APE" ticker) to common shares back in March.

But about a month ago, a Delaware judge blocked the plan. And AMC had to resubmit it.

The judge approved the revised plan last week. And in a filing with the U.S. Securities and Exchange Commission, AMC said it would convert APE shares to AMC shares next Friday.

For context, AMC shares currently trade at around $4. And APE shares trade at about $2.

Frankly, it's absurd that the two classes of AMC's shares trade at different prices. After all, they're all just ownership stakes in the same company. The APEs aren't anything special.

But since the APE shares began trading last August, they've had drastically different prices. Take a look...

In the end, the conversion tells us what we've known all along. The APEs have always been equal to AMC common shares. And now that AMC is combining the two classes, it's official.

But that doesn't seem to matter to the company's shareholders. Since AMC disclosed the court-approved plan last Friday, they're still acting as if the two share classes are different...

The price of AMC's common shares has collapsed, while the price of the APEs has soared.

AMC is down roughly 25% since last Friday's close. Meanwhile, APE is up around 25%.

At first glance, this price action seems to make sense...

A lot of folks are buying APE shares and selling short AMC shares. They're doing that under the rational mindset that the shares are the same thing, so their values should converge.

There's an itsy-bitsy problem, though...

This trade assumes that AMC's shares have any value at all.

But I doubt that's true. They're almost certainly worth zero.

For that reason, this trade could (and should) fall apart any minute. That will happen once folks get a clue that the business is in horrible shape and probably headed for bankruptcy.

Conversion or not, I'm not sure why anybody wants to own either class of the company's shares today...

AMC is a dying company in a declining industry (movie theaters).

The movie-theater industry peaked in the 1930s. That's not a typo, either...

Back then, roughly 65% of the country went to the movies once a week. But after the invention of television, a few distracting wars, the long-term rise of inflation, and the dawn of the Internet (among other things), that figure dropped to less than 10% by 2000.

The lockdowns during the COVID-19 pandemic further brutalized the industry. Nowadays, most Americans don't bother driving to the local movie theater at all.

It's no wonder AMC has reported nearly $7 billion in net losses over the past four years.

The company now has nearly $9 billion in debt and lease liabilities. It lost $741.5 million and paid roughly $400 million in interest expenses over the past four quarters.

That's not a sustainable business. And the bond market knows it...

AMC's bonds all trade between roughly half to three-quarters of their par value. Those sorts of prices suggest that bankruptcy is a real possibility.

And if AMC's bonds are that bad off, its equity is worthless. It's just a matter of time.

It's absurd that AMC's two classes of shares are trading based solely on the conversion. They should trade based on the company's advanced state of financial distress.

When you look at it that way, AMC and APE should both be a lot closer to zero than they are right now. And like the bond market, the stock market will eventually figure that out.

If you got rich on AMC at any time over the past few years, you got insanely lucky. The same is true about all the other garbage that peaked in 2021 and proceeded to fall apart.

In the end, as UBS and Credit Suisse discovered, 1.7 million Americans weren't really millionaires at all. Instead, they were just temporarily fortunate gamblers.

Don't get me wrong...

It's great to strive for a million-dollar 401(k)...

But getting there and staying there require two completely different skill sets. And as the report from UBS and Credit Suisse proves, a lot of people who get there fail to stay there.

You can get there by buying and holding garbage stocks as investor euphoria surges. But you can only stay there by investing in good businesses and holding them for the long term.

Sure, some people lucked out and made money on AMC. But many of them overstayed their welcome and became howling apes. Now, they'll stay no matter what dumb stuff AMC pulls (like buying a gold mine that doesn't produces any gold and might never operate again).

That proves these people don't have the skill set to hang on to their winnings.

Fortunately, if your 401(k) hasn't yet hit seven-figure territory, Fidelity gave you a clue about how to do it. As the Wall Street Journal reported in the same article this week...

Among the characteristics that distinguish 401(k) millionaires are high savings rates. On average, they save 17.2% of their pay. Their employers contribute another 9.3% to their retirement accounts, for a total savings rate of 26.5%, according to Fidelity.

That statistic really hits home for me. It speaks to one of the great discoveries of my multidecade odyssey of investing...

Saving is the single most essential skill for all investors.

Without that skill, you can't ever become an investor in the first place.

Saving is to investing as walking is to running...

You must learn the first skill before you can even attempt the second.

Saving is just realizing that building wealth means you must spend less than you make. The less you spend compared with what you make, the faster you can grow your wealth.

It doesn't matter how well you pick stocks or other investments. If you don't stay strong and keep your savings a safe distance away from your spending, you'll never get wealthy.

In simple terms, becoming wealthy is about having a giant pile of money you never spend.

Sure, it's also about building a business or career and setting enough money aside to compound in the right investments. But if you can't keep your spending below your income and avoid touching your savings, everything else you do as an investor will be in vain.

Unfortunately for savers, the Federal Reserve goes to war against them whenever trouble crops up...

The central bank lowered interest rates to zero after the 2008 crisis and kept them there until 2015. Then, after a very brief period of raising rates, it took them back down to zero when the COVID-19 pandemic began in 2020 and kept them there until last year.

When you're making a few pennies a year on every $10,000 you save, you start to feel stupid for putting any portion of your savings into a bank account. When rates are too low for too long (like in the U.S. since 2008), folks get used to taking on more and more risk.

That's why the most appealing alternative for many people became the stock market.

The best investors stay the course and keep their portfolios away from the worst garbage. But some folks just can't help themselves...

They get into the "get rich quick" corners of the market like speculative meme stocks. And if they make a quick buck, it gets even worse...

They think they've found a magic money machine. So then, they put more and more money into the worst parts of the market.

But before they know it, they're staring directly into the biggest mega-bubble in all recorded history. And now, we're starting to find out what the other side of all that froth looks like...

Temporary bubble millionaires are trying to break even by chasing garbage like AMC and APE while pretending the company isn't headed for zero. (To be fair, most of them don't have the needed knowledge and experience to reach that level of understanding.)

I've learned a lot about building wealth over the years...

But the essential nature of saving is the one thing I probably can't repeat enough. It's even more important than my regular investing mantra of "prepare, don't predict."

That mantra is about what to do with your capital once you have it. Saving is about hoarding the capital needed to prepare for whatever lies ahead – investing or not.

And as I hope today's Digest demonstrates, it's more than that...

Saving and investing together wind up as a quest to grow and preserve your wealth.

You want to build something and preserve it for whatever purpose you deem fit. Perhaps you'll finance a long retirement. Maybe you'll leave something to your kids and grandkids.

It's about whatever means the most to you.

Saving and investing are ultimately about living a great life. And life is about a lot more than just getting up and going to work every day. Most of us do that to serve other, higher purposes.

But you need to master the skill set that starts with saving, moves on to investing, and then leads to wealth preservation. Otherwise, those higher purposes will remain a pipe dream.

I try to keep all that in mind with every syllable of investment advice I publish in Extreme Value and The Ferris Report. And all my Stansberry Research colleagues do as well...

They all have the needed experience and knowledge to keep you away from garbage like AMC. Rather, they'll get you into the sorts of trading and investing strategies that will help you build a long-lasting legacy for yourself and the next generation (and the one after that).

So when you're writing down your wealth goals, remember this...

You need to include staying rich along with getting rich.

You don't want to wind up as a former millionaire like 1.7 million Americans did last year.

You want to be a permanent millionaire, not a temporary one.

New 52-week highs (as of 8/17/23): Gambling.com (GAMB).

In today's mailbag, more feedback on the supposed "resilience" of the American consumer – which Digest editor Corey McLaughlin questioned earlier this week. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Inflation and debt accumulation have destroyed the economic dream of most Americans. Housing is simply not affordable to the majority of society, either by monthly payment or by ability to make a down payment. Meeting monthly expenses is a struggle for most, even those making six figures. Most of this is due to economic/financial ignorance but that is not going away. Some ugly times are ahead for society and the free market system. The cheerleaders who crow about the latest increase in corporate profits or rising markets or [government] issued economic statistics are hopelessly blind." – Subscriber Robert B.

"I've just finished reading Fringes of Power by John Colville. Colville was private secretary to Churchill during WWII. The book is his (illegally) kept journal during that time. It's one of those books [that's] both fascinating and boring.

"A major fact that kept slapping me upside the head: while 99% of the UK was eating tinned food, rationing gas, living in fear, while the U.S. was handing out ration books and growing victory gardens because food was scarce, those in power and at its fringes described by Colville were little affected by war's changes in their everyday lifestyle. They ate at starred restaurants. They dressed for dinner and drank cocktails beforehand. He complained in the book on the rare occasions that a visit to troops included a mess hall meal. They dined. They danced. They wined. They pranced out on horseback in the mornings. They suffered little. The average citizen suffered greatly during that war.

"It seems to always be that way. Those in power eat their caviar while the rest of us are worried about the mortgage. Marie isn't the only one offering a cake solution to people who can't even find ramens at the dollar store. (This actually happened to us during COVID. I told my husband: "What will we do? Ramens got us through grad school! I don't know how to deal with this without ramens!" We dealt.)

"Anyone who thinks these power people care about the little guy's well-being and comfort and 401(k) balance... well, good luck with that. I am all the more convinced government should have a very limited scope of responsibility. It has very few things it does even at a 'C' level, let alone well. What it does do well: taxes and war." – Subscriber Jacqueline G.

Good investing,

Dan Ferris
Eagle Point, Oregon
August 18, 2023