Four Simple Rules of Thumb to Stop Losing Money

Four simple rules of thumb to stop losing money... A time-tested formula for success... Toss your little blue pills and do this instead... Mailbag: Readers are upset about gold...

Editor's note: The Digest team is in Sea Island, Georgia this week for our annual Spring Editors Conference. Every year, we gather our analysts and closest business contacts to share our top ideas and ongoing research.

So in lieu of our regular Digests, we're featuring a special series excerpted from Dr. David Eifrig's Retirement Millionaire Daily. In this free daily e-letter, "Doc" and his research team share their top health and wealth ideas... and show readers how to live the millionaire lifestyle for far less than you could ever imagine.

We hope you enjoy this special series. We'll return to our normal fare later this week...

When it comes to science, medicine, and investing... few things work better than good rules of thumb.

"Eat your vegetables" and "an apple a day keeps the doctor away" may be simplistic. But they are two of the best health guidelines ever uttered. And more recent advice to "walk 15 minutes a day" has now been shown to decrease risks of cancer and diabetes...

These simple and easy-to-remember rules bring proven benefits.

The same is true for investing. Simple rules of thumb can take much of the human error out of your decision-making...

For example, one dangerous phenomenon that rules of thumb can help you avoid while investing is called "recency bias." People place too much importance on the most recent events. That forces them out at the bottoms of markets and in at the tops.

To see recency bias at work, just think about 2012...

People were afraid of another 2008-2009-type collapse. Record numbers of mutual-fund investors were piling into bond funds and, worse, buying U.S. Treasury securities.

Interest rates were near all-time lows, but investors followed the crowd into bonds. They were overly concerned about the past, and they were dumping stocks. But in my flagship investment letter, Retirement Millionaire, we stuck with the simple rules for evaluating opportunities... And we made a lot of money in stocks.

I (Doc Eifrig) have been getting more and more questions recently about the latest round of volatility in the market... And once again, folks are getting nervous – piling into bonds and Treasury securities or holding tons of cash at the local bank or credit union.

So if you're wondering what to do... learning a few rules of thumb for investing will help you immediately.

These simple rules will help you know when an individual stock represents a great opportunity to collect income and grow your wealth safely... or when an investment may have run its course.

Even if some of these ideas seem familiar or simplistic, I urge you to incorporate them into your investing as you build a long-term portfolio... It's a time-tested formula for success.

Rule No. 1: Look for price-to-earnings (P/E) ratios below the long-term average of the S&P 500, generally below 17. A low P/E ratio suggests the company is trading below its value, making it cheap.

Rule No. 2: Look for stocks trading for a price-to-book (P/B) ratio of less than one. A low P/B value suggests the company is undervalued, and you could be getting into a great company at a discount.

Rule No. 3: Try to avoid paying more than a price-to-sales (P/S) ratio of three for the stock of a solid, reliable business.

In the private markets, businesses usually get bought and sold at prices that are between one and two times sales. Of course, some well-established businesses with reliable sales can command a higher ratio.

Rule No. 4: Look for stocks that pay a dividend representing at least 2% of the share price. I also like to see a history of growing dividend payments. And I like the dividend yield to exceed the five-year Treasury note.

I prefer companies with a payout ratio of less than 50%... The payout ratio is the percent of earnings needed to support the dividend. In theory, at a 50% payout, a company's earnings could fall in half and still cover the dividend. This is an extreme. But by limiting ourselves to payout ratios of 50% or lower, we sleep better at night knowing our income is reliable.

A strong, consistent dividend almost always indicates a healthy business. The company is generating cash and wants to say "thank you" to shareholders.

Rising dividends also shore up stock prices in bear markets. Thus, dividend stocks are defensive stocks by nature. A rising dividend acts like a pontoon float and prevents the stock price from falling much.

These four simple rules for valuing a company make investing easier. Following them is a great way to invest in safe and solid opportunities. In fact, most of the times I've lost money, it was because I violated these rules.

It's one of the most common – and embarrassing – conditions that comes with age...

More than 30 million American men experience this significant health problem, but a staggering 75% don't seek treatment. They typically don't want to talk about it... or even hint at it... even though it's often treatable with some simple lifestyle changes.

Erectile dysfunction (ED) is the inability to have or maintain an erection. Getting an erection requires psychological effort and work from your nerves, blood vessels, and hormone system.

Here are some of the most common causes:

Any one of these can lead to ED. Medications like antidepressants and some operations (like prostate surgery) also have ED as a side effect.

But a recent study from researchers at Australia's University of Adelaide supports my recommendations that simple lifestyle changes are enough to reverse ED. The study, published in the Journal of Sexual Health, found that 29% of participants (aged 35 to 80 years) reversed their erectile dysfunction by losing weight, sleeping and eating better, and cutting alcohol consumption.

It's what I've said for years – simple lifestyle changes are much more beneficial than a bunch of pills. I think you'll find that changing several aspects of your life will help ED. If you want to get started today, try my top four recommendations:

1) Exercise. A Harvard study a few years ago showed that even just walking for 30 minutes a day helps lower the risk of ED by 41%. Losing those few extra pounds will help too. More weight on your body strains your cardiovascular system, which can lower the blood flow to your penis.

2) Drink coffee. A study from the University of Texas Health Science Center found that men who drank two to three cups of coffee per day had a lower risk for ED.

Of the 3,700 men surveyed, those who drank one to two cups of coffee a day reported 42% fewer cases of ED compared with men who drank no coffee. And men who drank two to three cups per day reported 39% fewer cases.

The researchers believe coffee improves blood flow to the penis and relaxes certain smooth muscles. We already know the many benefits of coffee and that the two-to-three-cup amount hits the most benefits.

3) Try the Mediterranean diet. Several trials have shown that eating a diet similar to what people living around the Mediterranean Sea eat – one that's rich in fruits, vegetables, olive oil, and fish – helps your immune system. It even helps keep your brain healthy and fights off signs of aging.

As it turns out, the Mediterranean diet also helps reverse ED. A study from the University of Naples showed that men who tried the diet for two years saw improvement.

Plus, these men all had metabolic syndrome – a fancy way of saying they had high blood pressure, cholesterol, blood sugar, and excess fat around their middles. So they had several factors that cause ED... making their improvements that much more significant.

4) Get the right amount of sleep. Studies have shown a link between sleep deprivation and ED.

Researchers have shown that testosterone is made during your sleeping hours. That means if you aren't sleeping enough or aren't sleeping well, your testosterone levels will drop, which leads to ED.

Because of this link, ED could also signal a deeper problem with sleep.

A study from Mount Sinai Medical Center found that 63% of patients reporting ED tested positive for sleep apnea, a condition where your breathing starts and stops irregularly during sleep.

Sleeping well is crucial for so many aspects of our health.

The research is clear – making lifestyle changes can significantly improve or even reverse your ED. So before you or your loved one starts popping pills, give these four tips a try.

Do what I do and eat well, enjoy a few cups of coffee each morning, go for a walk at lunch, and get plenty of sleep.

Editor's note: If you know anything about Doc, you know he's always looking for "loopholes" and other ways to live a millionaire's lifestyle on far less. For years, he has been telling his subscribers about these types of ideas in every issue of Retirement Millionaire.

Late last year, Doc launched a brand-new daily e-letter called Retirement Millionaire Daily. It's delivered every weekday afternoon, and it's jam-packed with secrets, tips, and strategies to help you save your money... or even your life.

Recently, he has shared the dangers hiding in your medicine cabinet... the easiest way to fight the aging process... how to save up to $3,000 a year on your taxes... and much, much more.

And here's the best part: Doc's e-letter is totally free of charge. Sign up for Retirement Millionaire Daily by clicking here.

New 52-week highs (as of 4/15/16): Becton Dickinson (BDX), Ciner Resources (CINR), Deutsche Bank Gold Double Long Fund (DGP), Dalradian Resources (DNA.TO), Johnson & Johnson (JNJ), 3M (MMM), and Reservoir Minerals (RMC.V).

In the mailbag, Porter answers a question about gold that we've gotten a lot lately. Send your questions and comments to feedback@stansberryresearch.com.

"Porter did not answer the question: How can gold coins or gold ingots be used if there is a meltdown of economies wherein paper currency has no value? Who will accept the gold for product (e.g. food)?" – Paid-up subscriber Marvin B.

Porter comment: Boy, did I ever kick a hornet's nest. We received several angry e-mails in response to Friday's Digest. I figured owning gold and knowing how to use it was like giving a teenager a condom – no instructions required, it's obvious.

But apparently, it's emphatically NOT obvious to a lot of people.

A lot of subscribers have never owned gold before and genuinely don't understand it. So let me start at the beginning.

Gold has certain characteristics that make it the perfect element to use as money. That's why we suggest buying it and holding it as a "hedge" against chaos. I don't believe gold bullion is an "investment." Gold is a high-quality form of money. Here's why:

1. Gold is the only universally accepted form of money that isn't anyone else's corresponding liability. Lots of things are important to have as an investor – stocks, bonds, insurance, etc. All of these things, including the paper money in your wallet, are the obligation of a "counter party." And what if all of the counter parties in the financial system were to go out of business... or simply went "offline" for some period of time? What would you use as money? Gold.

2. Gold is timeless. Unlike many other things you might barter with, gold doesn't age. It doesn't spoil or rust. It is completely timeless. That means all creditors and debtors know they will be treated fairly. The ounce of gold they borrow today will be just as good tomorrow. It will be "as good as gold."

This, obviously, is a huge advantage over forms of paper money, which are designed to fail. Nobody lending paper money for 10 years or more expects to be paid back anything like the value they lent. That's why historically, interest rates have been high for paper money. There's a big risk of inflation (loss of purchasing power).

3. Gold isn't consumed. Outside of a few limited industrial applications, gold isn't consumed, like platinum and silver are. All of the gold that has ever been mined is still in use today. Gold's supply is steady.

4. Gold is rare. Mining gold isn't easy. There's a huge barrier to increasing the supply of gold, which places a fundamental limit to how much credit can be created when gold is the basis of the banking system. That helps prevent economies from getting into too much debt (like ours today). And that means that financial booms and busts are more restrained.

5. Gold is portable. You can easily put $20 million of gold in a suitcase. You can do the same thing with diamonds, but those are going to be much harder to sell.

6. Gold is easily divisible. You can clip gold coins with a pair of scissors, and pay for goods in grams of gold. Try doing that with a diamond. This point, it seems, is really hard for folks to grasp. The No. 1 question we got was, "How could I use gold to buy simple items? How could I get any change?" The answer is that you wouldn't use a full ounce of gold to buy most things. And change, when required, would probably come in the form of silver or small gold coins.

For those reasons, I believe you should own at least some (5% or so) of your portfolio in gold bullion (basic coins or bars). You should do so because if the global banking system suffers a radical collapse (and it certainly will, sooner or later), you will have the highest-caliber form of money that exists.

With gold, you'll be able to buy anything else you might need. You wouldn't want to exchange your gold for whatever paper money is still circulating, because in this scenario, paper money will continue to decline in value. It will be like toilet paper. Instead, you could use your gold reserve to pay for essentials, either by clipping your coins or by exchanging them for silver or smaller gold coins – the same way that today you use a $100 bill and end with a wallet full of $5 and $20 bills.

I hope that helps. The main point is that gold is money. It's the absolute best form of money that has ever been created. Make sure you own at least a little bit of it.

Regards,

Justin Brill and Dr. David Eifrig
Sea Island, Georgia
April 18, 2016