Finding Value at the End of an Inevitable, Solemn Journey
Finding value at the end of an inevitable, solemn journey... The only decision-maker in your life... Using the three 'Delphic entrance maxims' as our guide... How to get to know yourself better... Avoiding excess... The most toxic emotion of all...
Today's Digest is the product of emotional upheaval, not study or research...
It's as much about life as it is about investing...
First, I (Dan Ferris) will show you how I got into this frame of mind... And then, we'll extract some insight to help you improve your own investing choices – and hopefully your life, too.
The inevitable, solemn journey to this day started about a year ago...
Back then, I got a phone call that scared the heck out of me.
My brother told me that my then-92-year-old mom was not long for this world... She was suffering from end-stage chronic obstructive pulmonary disease ("COPD"), having smoked cigarettes from her early teens until her early 60s.
And then, in early November, Mom fell and broke her elbow, wrist, and pelvis. I dropped everything and flew back East to be by her side for what I thought was the last time.
I should have known she would recover... Mom was tough. She was born in 1927 and grew up during the Great Depression. Her mother died just after giving birth to my mom, and her father abandoned his five daughters when my mom was just a child.
I was relieved – and not surprised at all – when she recovered... and hung on for another (increasingly difficult) 10 months.
But finally, mercifully, Mom went to her great reward on September 1, 2020 at age 93... In her time on Earth, she lived through 71 years of marriage, raised seven children, and loved 22 grandchildren and nine great-grandchildren with all her heart.
I can't look at Mom's picture without breaking down at least a little bit. I don't care how old you are (I'm 58)... When your mom dies, the bottom drops out of your world. And given my parents' greater-than-average longevity, I bet many Digest readers know exactly what I mean.
Still, although it's one of the most unpleasant experiences in life, it's valuable to have your world upended...
And I hope in this week's Digest to impart a modest bit of wisdom – about life and investing – based on how I've felt these last 10 days. To borrow a phrase from Porter, my good friend and Stansberry Research founder... it's what I'd want if our roles were reversed.
Among other lessons is one about volatility. Smooth, stable gains in financial markets, as in life, are always temporary... and mostly an illusion.
Life and markets are both filled with nonlinear jolts and shocks. Your ability to handle these jolts and shocks can approach life-and-death importance. And in your investing activities, it could be the difference between capital preservation and financial ruin.
I often say, "Prepare. Don't predict." Salespeople are often told to remember, "ABC: Always Be Closing." So this week, in that vein, I'll tweak my perennial advice a bit...
ABP: Always Be Preparing.
Prepare for the jolts and shocks that you'll inevitably face in the markets... They always come too soon and last too long. Stockpiling cash and gold can help you here.
When I've thought about investing at all recently, I've focused on one specific idea...
I've contemplated how personal it is for those folks who, like you and me, have decided to build our own portfolios from the bottom up... one decision at a time... with no one to answer to but ourselves.
Stansberry Investor Hour podcast listener Andy F. recently raised this topic in a comment on my interview in Episode 170 with Stansberry NewsWire analyst Mark Putrino. As he wrote...
The pathway on professional returns matters. Drawdowns for a personal account need only be answered by you. Go try that with other people's money – it won't work.
Andy's comment about institutional investors turned into a great way to underscore the personal nature of individuals managing their own money one decision at a time. Your portfolio decisions are between you and God...
There are no pat answers or generic solutions.
My colleagues at Stansberry can – and in my thoroughly biased opinion, do – give great advice and provide you with many excellent investing ideas and insights.
But that's not all it takes... The rubber meets the road, and money is made and lost only by your own buying, holding, and selling. And it's up to you – and only you – to get those decisions right over your investment career.
Investing is hard, and doing it on your own requires that you know yourself...
I briefly mentioned a few thoughts about this concept on this week's episode of the Stansberry Investor Hour. But in today's Digest, I want to dive deeper into these ideas...
According to ancient Greek legend, 147 maxims were inscribed in and around the Temple of Apollo at Delphi (which is in ruins today). A maxim is a short statement, usually expressing a rule of conduct or general truth.
The most famous of these rules of conduct were the three "entrance maxims" inscribed on the forecourt of the temple. And as you'll see, thousands of years later, these fundamental concepts can still serve as a guide for your investing journey – and your everyday life...
The first Delphic entrance maxim is 'Know yourself'...
A loved one's death can bring your own life into sharper focus... Suddenly, you feel like you know yourself a little bit better.
Knowing yourself can mean many things for an investor...
Perhaps most important of all, you need to know how you're most likely to behave under a wide variety of possible future scenarios.
For example, you might tell yourself you're a long-term investor who can ride out the bad times without fear. But in reality, you're the kind of person who gets scared and sells everything whenever the stock market falls 10%.
Don't start with something you read in some book about Warren Buffett. Start with the truth about who you are and how you want to spend your life. Only then will the stories of Buffett, other investing legends, or anyone else who has found success prove useful to you.
When you decide to buy, you can't do it blindly. You need a plan... You must buy today with an idea of how you'll decide to hold or sell tomorrow. That's hard and requires honesty about your most likely future behavior, especially since you might have to sell at a loss.
The difficulty of knowing how you'll behave in an unknowable future is why every editor at Stansberry uses a trailing stop or some other type of exit strategy with every single recommendation.
No matter what the future holds... honoring your stops is an action you can use to protect your assets and help you grow into a successful investor. It also engenders self-trust, one of the great payoffs of greater self-knowledge.
Knowing yourself also means spending time on those investment ideas where you're likely to make the best decisions. It means being able to look at an investment idea and know without too much trouble, "That's not for me," or, "Yep, that's my kind of investment."
We can help you figure that out... Every Stansberry editor describes the general risk level and appropriateness of their strategy, whether they're recommending a safe income vehicle or a risky speculative bet.
But again, in the end, it's always your money and your decision. You have to know yourself to bridge the gap between our advice and your actions.
So how do you get to know yourself better?
You must develop skills and relationships, travel more, and read as much as possible.
Inspired by tech guru Paul Graham's 2016 blog post, "Life Is Short," I'll just say this about skills, relationships, and travel...
Don't waste time on things that don't matter. Do more of what matters sooner rather than later, and savor every minute. In all those areas, don't delay. One day, you won't have any more chances left to get them right.
That brings us to the topic of reading. And as someone who loves immersing myself in books more than almost anything else in life, I can help you with this.
You must read often to know yourself well. Read whatever turns you on and do so voraciously.
In my quest to know myself better, I currently read from six different "daily inspiration" books every single day without fail...
- The Artist's Way Every Day, by Julia Cameron (It's my favorite book of the group.)
- The Daily Stoic, by Ryan Holiday and Steven Hanselman
- The Book of Life, by J. Krishnamurti (I enjoy it, but I mostly don't understand it.)
- Self-Esteem Every Day, by Nathaniel Branden
- The Daily Drucker, by Peter Drucker (This one is the most practical for business and investing.)
- The Daily Spark: Critical Thinking, by SparkNotes
I also try to read from the Bible every day. It's full of great stories and loaded with wisdom. And sometimes, it even makes me laugh...
Like in the book of Genesis, for example, when God changes Abram's name to Abraham and makes a covenant with him. He requires that all males eight days and older be circumcised, then says Abraham's 90-year-old wife will get pregnant. (Naturally, Abraham laughs.)
I can imagine Abraham coming home to his 13-year-old son Ishmael with the news...
Hey son, I spoke with God today. He changed my name to Abraham and your mom's name from Sarai to Sarah. He says I'm gonna be father to many nations and that your mom is gonna get pregnant! I know, I know... I laughed, too. Oh yeah, one more thing, son. Drop your pants... This is gonna hurt.
I mine these books for new ideas to put into practice every day. Other titles on my bookshelves are filled with a wide variety of different ideas, too. I'll put all these books into the daily rotation at some point...
- The Great Ideas, by Mortimer J. Adler
- The Society of Mind, by Marvin Minsky (This book is full of 270 one-page essays on how the mind works. It's the first time I ever heard of "mental models.")
- Super Thinking: The Big Book of Mental Models, by Gabriel Weinberg and Lauren McCann
- The Great Mental Models, Volumes 1 and 2, by Farnam Street (Shane Parrish)
- Essays, by Francis Bacon
- The Complete Essays of Michel de Montaigne
I also recommend two books from esteemed English publisher Felix Dennis – How to Get Rich and The Narrow Road. I've found both titles helpful for figuring out what I'll do and won't do to get richer.
Maybe none of these titles will help you. Don't feel obligated to read books that don't turn you on. You need to figure that out for yourself, too... But no matter what, you should definitely read more.
I'm writing this Digest surrounded by close to 1,000 books (growing at roughly five to 10 titles per month). Sometimes, I find something that bored me three years ago... and given a second chance, it really captures my attention. Sometimes, I start reading something I thought I would love and put it down because it's not what I was looking for after all.
Read, read, and read some more.
I've bought 10 books since my mom died last week. Her death underscored my own mortality... and how you can't waste any time when you want to read all you can.
Before we move on, I should mention that you'll never really know yourself. But that's a topic for another Digest. We can get deeper into that whole concept some other time.
For now, just remember that all you can do to know yourself better – skills, relationships, travel, and reading – will help you stay grounded when the earth below the market moves.
Paying enough attention to each of these essential facets of a good life will also naturally help you understand...
The need for the second Delphic entrance maxim – 'Nothing in Excess'...
Nothing in excess doesn't just mean don't eat or drink too much.
It also means you must know your limitations. Buffett tells investors to stay inside their "circle of competence." One of his many famous sayings is...
Know your circle of competence, and stick within it. The size of that circle is not very important; knowing its boundaries, however, is vital.
I stick mostly to bottom-up, one-stock-at-a-time analysis from a long-term, value-oriented viewpoint. That's what I've been doing the longest, and it's what I'm best at. I don't do a lot of short-term trading or technical analysis because that's not in my circle of competence.
By all means, work to increase your knowledge and skills... But at the same time, know your limits and understand that you'll be most effective when operating within them.
One easy way to avoid excess is to never put all your money into a single position...
I've heard folks on Twitter say they have all their money in electric-car maker Tesla (TSLA). That's crazy... It's a new business in a highly competitive, low-margin, capital-intensive industry, making it a very risky bet.
Even Tesla founder Elon Musk doesn't have all his money in Tesla! He has been involved in several different businesses – from SpaceX to SolarCity to The Boring Company and more.
I've seen research that suggests owning between 12 and 18 stocks provides 90% of the maximum benefits of diversification, but even that only goes so far...
For example, if you have all your money in 12 to 18 tech stocks or 12 to 18 mining stocks, you're reducing the risk of focusing on a single stock in those sectors. But when it comes down to it, you're not truly diversified. If that sector goes bust, you're in trouble.
And because of that, you're violating the second Delphic entrance maxim.
To honor this maxim, practice what I've repeatedly referred to as true diversification...
If all your money is in stocks and bonds, that's not true diversification. You should also have some assets outside the financial system – like precious metals and bitcoin.
You can also honor the second maxim by avoiding excessive buying and selling. This is sometimes referred to as "overtrading your account."
You should never trade unless your system indicates it's time to trade. And if you don't have a well-conceived system, you have no business trading at all.
No signal, no trade. Period.
The editors of Stansberry's short-term trading services aren't afraid to tell their subscribers when nothing makes sense for a trade. And after that, they'll usually tell the readers which markets or stocks they're watching and which signals they're waiting to trade.
You should take their advice. They want to trade... And they know you do, too. But they're not going to just trade for the sake of doing something. That's a fool's errand.
So when these knowledgeable experts say to hold off for a day or a week, listen to them.
I also avoid excess by reducing the amount of time I spend looking at my stock, bond, and option holdings...
It's not necessary to look at shorter-term positions more than once or twice a day at the most. And you can probably check in on longer-term positions far less often... maybe just once a month, if that. I look at one of my old 401(k) plans just a few times a year.
I use price alerts to avoid wasting time logging in and out of accounts. Most online brokers offer some type of alerts. And our corporate affiliate TradeSmith does that, too.
Avoiding excess will tend to imbue investors with a sense of humility.
And that brings us to the third Delphic entrance maxim – 'Surety Brings Ruin'...
Surety means overconfidence. For investors, this is likely the most toxic emotion of all.
Just ask the folks who bought Cisco Systems (CSCO) for $82 a share in March 2000 because they had absolutely no doubt that its business would grow to the moon... and its share price would skyrocket right along with it. They understand that surety brings ruin...
It has been 20 years, and they've yet to break even. But let's face it, most of those folks probably sold out long ago... during the stock's 89% decline to $8.60 per share in October 2002.
Wait several years and talk to anyone who's buying shares of the "FAANG" stocks today because they're certain no business will ever equal them for decades to come.
I bet they'll be able to tell you all about how surety brought ruin. Or maybe it won't work out that way... Maybe I'll be the one telling you that because I didn't own these stocks.
I don't claim to know the future. But I've seen this movie before... and I know how it ends.
As a young musician, I studied to excel at very complicated pieces in the practice room... But when I tried to play in front of my classmates, I struggled and gave error-ridden performances. I quickly and painfully learned that I could only perform the most difficult repertoire once I'd developed beyond that level.
I learned never to try to perform at 100% of my capacity during a performance. Instead, I would perform at a more comfortable 80% capacity... in part because that 100% mark isn't always clear. Only through avoiding overconfidence could I project true confidence on stage.
My research analyst Mike Barrett and I do the same thing in our Extreme Value newsletter...
We only recommend stocks trading far enough below our intrinsic value estimates to give us enough room in case we're off by 30% or more... or perhaps just early or unlucky.
A good value investor is a humble one, and our process builds in that sense of humility.
Another blind spot that indicates overconfidence is in investors' sell strategies...
I'm convinced that many overconfident investors don't have one. They're either certain they don't need one... or maybe haven't yet suffered enough to understand the need for one.
The longer they go without one, the more certain it is they'll suffer.
During our Stansberry Investor Hour interview, Mark Putrino underscored the importance of having a sell strategy when he said, "How you sell is more important than what you buy."
Few people acknowledge that, but it's true... It does you no good to know what to buy if you don't know how to sell – and selling is hard, whether you're up 300% or down 30%.
Sell strategy is a prominent cornerstone of the advice we give at Stansberry Research...
Even before our company came into existence two decades ago, my friend and colleague Steve Sjuggerud started using stops after his experience as a broker.
During that time, Steve saw too many individual investors hang on to losing positions. They were overconfident, and surety brought ruin to many of them.
It was painful for Steve to watch... so he vowed not to let it happen to himself or anyone asking him for advice. That led him to pioneer the use of trailing stops in our industry. The TradeStops risk-management platform would very likely not even exist without Steve's highly disciplined approach to cutting losses and protecting profits through trailing stops.
That's why, as I said earlier, we all use trailing stops and other risk controls with everything we recommend at Stansberry. We've all had the experience of either overconfidence ourselves... or like Steve, watching other investors get ruined by this violation of the third Delphic entrance maxim.
Ruin isn't a fun topic for anyone to think about, but you still must understand how to avoid it...
Some people get wiped out and never come back. Some folks come back, but they never learn to tame overconfidence. Both types of investors fail to make money in stocks.
Survival is all-important. If you can just survive for a long time in the stock market, you'll make plenty of money. Avoid the big losses... and the life-changing gains will come.
Starting with these maxims at Delphi, the ancient Greeks sure seem like they knew a lot. I can hardly think of a better set of foundational principles for investing and life...
- Know Yourself
- Nothing in Excess
- Surety Brings Ruin
I hope you've gained something in today's Digest from my philosophical mood, born as it was of loss and sadness. I bet you've learned from losses you've suffered, too...
I read Samuel Taylor Coleridge's classic poem, The Rime of the Ancient Mariner, as a freshman in college. More than three decades later, I remember little about the poem except that the ancient mariner tells a tale to a man on his way to a wedding.
But despite being unable to recall most of the details, I'll never forget the ending... After hearing the mariner's story, the wedding guest emerged "a sadder and a wiser man."
Every experienced investor can identify with that. If you feel inclined to do so this weekend, please tell us how you've endured loss... and emerged sadder and wiser.
Drop us a line at feedback@stansberryresearch.com. I assure you that I'll do my best to read them all... and hopefully, they'll serve as a guide through this journey called life.
Until then...
New 52-week highs (as of 9/10/20): Osisko Gold Royalties (OR).
The mailbag is quiet. But we hope you'll take a few minutes over the weekend to share your thoughts on today's Digest with us at feedback@stansberryresearch.com.
Good investing,
Dan Ferris
Vancouver, Washington
September 11, 2020