Masters Series: The Rich Investor's Secret to Avoiding Worry and Wasted Time
Editor's note: This weekend in the Masters Series, we're starting out 2015 with two classic essays about the best ways to grow your wealth.
In today's piece – originally published June 3, 2011 in our free e-letter DailyWealth – Retirement Trader editor Dr. David "Doc" Eifrig explains a core principle of building wealth through investments: The best investors don't waste energy "chasing" big scores. They let winning opportunities come to them.
The details of the investments Doc describes below have changed, but the principle remains as valid as ever.
You should remind yourself of this simple secret every year. It's one successful investors understand, but lots of people find hard to follow...
The Rich Investor's Secret to Avoiding Worry and Wasted Time
By Dr. David Eifrig, editor, Retirement Trader
Many of the world's richest and most successful investors grow and protect their wealth using a strategy the average investor has never considered...
If you can master this technique, you can avoid a huge amount of worry and wasted time and set yourself up to make extraordinary returns.
I realize it might seem like a silly comparison, but I've found the most useful way to describe this approach is in terms of the anaconda...
Anacondas are one of the world's deadliest, most efficient predators... These snakes don't "zip" around, wasting energy chasing after their prey. They don't get into long battles. They don't hunt in a traditional sense at all.
Instead, anacondas lie around in rivers for long periods of time. They wait for an unsuspecting animal to pass by. Only then do they strike... Anacondas aren't interested in fair fights. They are nature's "no risk" operators.
And because they don't spend much time or energy chasing every animal that comes along, they can grow to an incredible size.
So what I call "anaconda trading" is all about patience... Developing the patience to hold cash and savings and sit tight until the ideal opportunity presents itself... an opportunity where the odds are overwhelmingly stacked in your favor.
Here's an example of how it works...
I love the idea of owning municipal ("muni") bonds. You collect tax-free income, and they have a tiny default rate (around 0.1%). But up until late last year, investors chasing yield had pushed payouts down to unattractive levels.
Then our opportunity arrived...
In December, high-profile bank analyst Meredith Whitney made a splash predicting billions of dollars of losses in the municipal-bond market. Prices plunged. The biggest muni-bond fund fell to mid-2009 levels... Investors could collect low-risk, tax-free yields that were higher than taxable Treasury yields. (Historically, you only see that situation about 10% of the time.)
So we struck. In my Retirement Millionaire newsletter, we bought funds yielding a taxable-equivalent 10%... at a 5% discount.
Since then, the fear has subsided in the muni market, prices are up, and we're still collecting our fat yield.
It was a perfect "anaconda trade." We weren't "chasing yield" like the rest of the crowd. Instead, we were watching an asset we liked, waiting patiently for our opportunity. When it came, we didn't hesitate.
And right now, we're taking advantage of another huge "anaconda" opportunity... formerly high-flying technology stocks like Microsoft, Intel, and Cisco.
These companies dominate their markets. Intel controls 80% of the world market for microprocessors. Cisco is the major manufacturer of networking devices worldwide. And they increase earnings year after year after year. For the first quarter of 2011, Intel's earnings were up 37% from the same time in 2010.
They've also built up large hoards of cash. Microsoft alone has close to $50 billion. Many are even paying dividends now. Cisco, for example, started paying a dividend in March.
These are fantastic companies that I'd love to own at the right prices. And our opportunity is here...
These stocks used to be the darlings of Wall Street. But they're no longer the fast-growing stocks they used to be. Last year, Microsoft's earnings grew "only" 22%. So they've been tossed aside and forgotten by many investors today. In the past four months, Cisco has fallen more than 25%.
There's no reason a relentless cash-flow generator like Cisco should be trading at nine times earnings. The same goes for Intel and Microsoft.
This is a perfect example of an anaconda opportunity... Our "prey" is just sitting there. We can make an easy, low-risk bet with a high probability of success.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig Jr.
Editor's note: Many investors think municipal bonds are boring. But three-and-a-half years after he originally wrote this essay, they remain one of Dr. Eifrig's top income-generating investment ideas.
Another one of his best ideas is misunderstood by most investors. They think the strategy is too risky. It's actually one of the only trading strategies in America where you're essentially guaranteed to generate hundreds of dollars instantly… no matter what happens in the market… without buying a single investment upfront. And you can do it in your spare time.
"Doc" has a 98% success rate using this strategy in his Retirement Trader newsletter. That's one of the most impressive track records in the financial newsletter industry. Click here to learn more about how this technique can grow and protect your wealth.