The No. 1 Secret of Investing (and Life)

The No. 1 secret of investing (and life)... This type of advice isn't sexy, but it's more valuable... The primary secret of the world's wealthiest investors... It permeates every facet of human existence... From science to art to medicine...

If a single secret to investing and living a good life exists, this is it...

I (Dan Ferris) have mentioned it before in my 20-plus years of writing in this business. But I need to make sure I give a great idea its due... And I'll try to do just that today.

This is one of the most important ideas you'll ever learn... And it's definitely the most important investing idea you'll ever learn.

Without this one concept, you'll never make a dime in the stock market. Without mastering it, you'll flounder in your career... And even worse, you'll live a wasteful, frustrating life.

This idea separates the best investors from the rest...

As I'll explain in today's Digest, it's the one thing such different investors and thinkers like Warren Buffett, Charlie Munger, George Soros, Ray Dalio, and even Albert Einstein all have in common.

Master this idea and you'll easily outperform the vast majority of investors... most of whom won't or can't practice it... whether out of ignorance, hubris, or institutional inertia.

At the end of every interview on the Stansberry Investor Hour podcast, I ask my guest a simple question: "If you could leave our listeners with one thought, what would it be?"

If you asked me that question, the idea I'll discuss in today's Digest would be my response.

So here it is, one of the most important life secrets I've ever learned, and by far the No. 1 most important investing principle I know and practice...

Author and trader Nassim Taleb summed it up best in his must-read book, Antifragile, when he wrote...

The learning of life is about what to avoid.

Taleb calls this idea "via negativa," which is Latin for the "negative way." Among other benefits, via negativa can help you assess my value to you. More from Taleb in Antifragile (bold added for emphasis)...

Charlatans are recognizable in that they will give you positive advice, and only positive advice, exploiting our gullibility and sucker-proneness... Yet in practice it is the negative that's used by the pros, those selected by evolution... people become rich by not going bust (particularly when others do).

It's easy to keep investors engaged with positive advice... Anyone can see a connection between buying a stock, a bond, or an option and making money.

It's much harder to keep investors engaged with "negative advice"... foundational guidance like don't lose money, don't take too much risk, or don't blow yourself up.

It's just not sexy – even though it's more valuable.

It's more valuable because you can't make any money unless you first avoid losing what you have. You must avoid loss with every stock, bond, and option you buy.

No matter what asset you buy... if you fail to avoid losses as a primary part of your strategy, one day, you'll blow up and lose everything.

Only a deep understanding of via negativa can prevent that from happening...

That's why via negativa is the primary secret of the wealthiest investors. Ask any of them, and that's exactly what they'll tell you...

Warren Buffett once said, "The first rule of investment is don't lose and the second rule of investment is don't forget the first rule, and that's all the rules there are."

A single edict, don't lose, is all the rules there are.

For Buffett, perhaps the greatest investor of all time, avoiding loss is a valuable, low-hanging fruit. His longtime business partner, Berkshire Hathaway (BRK-B) Vice Chairman Charlie Munger, said it a little differently...

It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.

Consistently not stupid.

For one example of what Buffett and Munger might be talking about, ask yourself... would you ever want to own a stock if the business had little or no hope of ever becoming profitable?

That seems like something you would want to avoid. Unprofitable companies' stock prices can soar sometimes. But reality always catches up with them... Eventually, investors realize they're not making any money. And in turn, the unprofitable company's stock blows up.

When too many people fail to avoid a mistake, it can look like a success... until reality catches up with them. Ask anybody who bought Pets.com, Webvan.com, eToys.com, or numerous other companies that never earned a dime during the dot-com boom.

Investing in unprofitable companies gets stupid quickly. It's best to avoid them.

Ray Dalio is another legendary investor you might recognize...

Dalio founded Bridgewater Associates in 1975. Today, 45 years later, Bridgewater is the world's largest hedge fund... with more than $100 billion in assets under management.

Dalio, too, has mastered the negative way... Throughout his illustrious career, he has said (bold emphasis added), "At any given time, there's so much you're not seeing," and "My biggest advantage is not what I know. It's that I know that I don't know a lot."

What you're not seeing. What you don't know.

Then there's George Soros. The wealthy philanthropist and speculator who famously "broke the Bank of England" in the 1990s once said...

Well, the secret of my success actually, I can now tell you... I'm always wrong. I'm always wrong and I try to correct my mistakes. That is the secret of my success. The funds are a very successful model, but they all have a flaw in the end. And eventually if you persist then the flaw becomes apparent.

I'm always wrong. Mistakes. Flaws.

Soros' success is, by his own account, based on being wrong and figuring out what not to do... rather than on being right and figuring out what to do.

It's negatively defined... just like the approaches from Buffett, Munger, and Dalio.

These billionaire geniuses all have different investing styles and different backgrounds...

Buffett and Munger are bottom-up value investors raised in Omaha, Nebraska. Dalio runs a diversified hedge fund and is the son of an Italian musician from the New York City borough of Queens. Soros is a macro trader raised in Hungary, who survived the Nazi occupation.

Yet they all converge on one idea... the one way of looking at the world that you must master before you make a penny in financial markets... via negativa.

It's the ability to figure out what speculations, businesses, investments, relationships, or just about anything else should be avoided. In Antifragile, Taleb explains why the via negativa is so powerful...

The greatest – and most robust – contribution to knowledge consists in removing what we think is wrong – subtractive epistemology.

Epistemology is a fancy word for the discipline of figuring out how we know what we know. And the very best way to know anything is to eliminate everything that it is not.

Investors should understand economics well. The power of via negativa goes a long way here, too...

I first learned about via negativa (before I knew what it was called) in Economics in One Lesson by longtime journalist Henry Hazlitt. In the book, Hazlitt describes the "broken window" fallacy frequently embraced by modern economic charlatans like Paul Krugman...

Some economists say it's an economic gain when a hoodlum breaks a baker's window because it creates business for the glassmaker to make a new window. But it's a fallacy because the money spent on the window won't be spent elsewhere... at other shops like the local tailor. As Hazlitt explains in Economics in One Lesson...

The [glassmaker's] gain of business... is merely the tailor's loss of business... [People who don't understand the fallacy] had forgotten the potential third party involved, the tailor... because he will not now enter the scene.

Seeing who is not there is the key to understanding this important economic fallacy.

After you're done with Hazlitt, read The Forgotten Man by William Graham Sumner. Again, the focus is on the person not present in decisions to create new government programs...

As soon as A observes something which seems to him to be wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determine what C shall do for X... I call [C] The Forgotten Man... He is the man who is never thought of. He is the victim of the reformer, social speculator and philanthropist.

In Antifragile, Taleb amplifies Sumner in terms of positive and negative actions...

Acts of commission are respected and glorified by our primitive minds and lead to, say, naïve government interventions that end in disaster, followed by generalized complaints about naïve government interventions... followed by more naïve government interventions. Acts of omission, not doing something, are not considered acts and do not appear to be part of one's mission.

We all know the sound of someone whining for the government to "do something."

Not doing something is often the better decision. People and businesses should generally get less government help, not more. Our company founder Porter Stansberry's COVID-19 Digest last Friday is a great example... It was a massive appeal to apply the negative way to the government's response.

Buffett's "first rule of investment"... Soros' "secret"... and every other piece of negative investment advice of the great investors... are all acts of omission.

Omit and correct investment mistakes... and investment profits become more likely.

This is why every editor at Stansberry Research uses some type of risk control...

They all know the via negativa from hard-won experience. They wouldn't dream of making a recommendation without an intimate understanding of the risk... of what not to do. All effective investment strategies make risk reduction a primary concern.

It's not just investment and economics, either.

Via negativa – the negative way – permeates every facet of human existence...

For example, do you want to understand science better than 99% of your peers?

Check out Albert Einstein, who understood the subtractive nature of knowledge (as every scientist must). He reportedly once said, "No amount of experimentation can ever prove me right; a single experiment can prove me wrong."

To strengthen your knowledge, figure out what parts of it are wrong and subtract them. It's usually much easier to see where you're obviously wrong than to know where you're right.

Scientific philosopher Karl Popper did a great job spelling out the power of subtractive knowledge... In his book, Conjectures and Refutations, he shows that we make scientific progress more by falsifying and subtracting what is wrong than by figuring out what is right.

For most of the 19th century, scientists thought light traveled through a "luminiferous aether" that couldn't be seen with the naked eye. But then, in 1887, Albert Michaelson and Edward Morley conducted a famous experiment proving that the aether didn't exist – setting in motion the work that culminated in Einstein's theory of relativity.

Michaelson and Morley enabled great scientific progress by subtracting the notion of an aether from our knowledge. That's how science really works... Real scientists understand that they're constantly engaged in a quest to figure out what's wrong.

But what about art, you might ask?

It's an act of pure creation... of building and adding. There's no subtracting.

Not so fast...

Italian renaissance artist Michelangelo once explained how he created his sculpture of David. As he said, "It's simple. I just remove everything that is not David."

You can draw that way, too. It's called "subtractive drawing"... The artist covers a drawing surface with graphite or coal and then erases it in different spots to create an image.

How about medicine?

Surely every good doctor must take in a giant pile of knowledge, adding more and more knowledge all the time. True enough, but doctors are scientists, too...

They spend plenty of time having patients tested to rule out the possibility of various illnesses, finding out what maladies the patient doesn't have. They proceed by subtracting.

And who hasn't heard the oft-repeated phrase from the ancient physician Hippocrates' famous oath, usually quoted as, "First do no harm." The oath is peppered with negatively defined acts, like... "I will not be ashamed to say I know not," "I must not play at God," and "I will prevent disease whenever I can, for prevention is preferable to cure."

Via negativa is everywhere...

You can't escape the need to master it if you wish to live a good life. Think how often you've said "less is more" at least once in your life, acknowledging the power of subtractive knowledge.

Apple (AAPL) founder Steve Jobs understood it. In a 1998 BusinessWeek article, he said...

That's been one of my mantras – focus and simplicity. Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it's worth it in the end because once you get there, you can move mountains.

Simplicity is the absence of complexity, the result of the process of subtraction.

Apple products are known for all the complexity that isn't in your way, making them rather addictive for users. To really "wow" your customers, master the negative way.

Every profession and every business needs to understand and master the power of the negative way. A mapmaker once wrote to Taleb and told him...

I learned a long time ago that the key to good mapmaking is precisely the info you choose to leave out... if a map is too literal and precise, it confuses people.

I hope from this day forward that you'll learn to focus your attention on all that shouldn't be there in your life, your portfolio, and your relationships.

It'll increase the gains in your portfolio... And more important, it'll enhance all the days of your life.

New 52-week highs (as of 4/20/20): DocuSign (DOCU), General Mills (GIS), KraneShares MSCI All China Health Care Fund (KURE), Lonza (LZAGY), Sea Limited (SE), and Wheaton Precious Metals (WPM).

In today's mailbag, feedback on the wild oil markets... and as we promised yesterday, more thoughts on Porter's Friday Digest about "The 'Big Lie' Behind COVID-19." As always, if you have comments or questions, send them to feedback@stansberryresearch.com.

"The day I wished I owned a modest oil tanker. Okay I'll take your $37.00 per barrel. Fill 'er up!" – Stansberry Alliance member Murray H.

"Dear Porter, Thanks for your courage in speaking out on the handling of the Covid-19 pandemic by our governments. I say our governments, because here in the UK the government initially wanted to adopt the kind of herd immunity strategy that you propose. Within days they were howled down by a torrent of media and social media abuse, based on nothing more than emotion and hysteria, with no consideration of the facts or the science. They were forced to back down and go with the kind of lockdown most other European countries had already opted for.

"I strongly believe that the rise of social media has vastly exaggerated this phenomenon of entitlement and rejection of risk in all its forms, aided and abetted by the weakness and incompetence of our political class. As people have surrendered their freedom to the all-embracing grip of the nanny state, they increasingly expect the government to cure all their ills with the wave of a magic wand – even to the point of not allowing ANYONE to die from a virus, even if most would probably have died with a few months anyway from other causes. As the late, great George Carlin said: 'Never underestimate the power of stupid people in large groups.'

"I'm sure you will lose lots of subscribers by taking this stand, but that never bothers you, so more kudos to you on that score. Have you ever thought of going into politics? We need people like you if we're ever going to rise above the mediocrity of our governing class." – Paid-up subscriber Martin P.

"The CDC has some data that is very interesting. The death rate from Covid-19 for people under the age of 55 is comparable to the death rate from influenza. This being so, would it make sense to maintain the lockdown for just those age 55 and above?

"Everyone under the age of 55 could just go back to school and work now before their education and livelihood suffered further setbacks and loss. To be sure, many people under the age of 55 would become sick with Covid-19 and have to self-quarantine for two weeks but would not the cost of this be far less than the cost of continuing to shut down the country through the summer and possibly beyond?" – Paid-up subscriber James G.

"Great to hear from you again, Porter! What a breath of fresh air to read common sense in the middle of government level hysteria. Thank you for taking exactly what I was already thinking and putting it in a reasonable, logical format for everyone to read. I couldn't agree with you more!" – Paid-up subscriber Matthew B.

"What a breath of fresh air to read Porter's thoughts on the Covid-19 virus. Yes, we should protect our elderly, but at the same time we have to get back to work helping and getting our economy headed in the right direction. Thank you Porter for voicing what many of us are thinking as we watch our governors behave like little dictators, not allowing us to use common sense and logic to figure out what we need to do to be safe. Keep up the good work." – Stansberry Alliance member Dave P.

"It literally nauseates me to see, every day, more postings starting with 'By Order of the GOVERNOR' (and yes, they use all caps). I live in northern Michigan and therefore am the subject of her majesty Gretchen Whitmer. I could cite the numerous ways she is 'keeping us safe' (including preventing people from fishing in any craft with a motor – you can't make this stuff up), but the biggest fear I have is that she is NEVER GOING TO 'LET' US OUT. It is going to take multiple acts of what will be considered civil disobedience to get our lives and liberties back.

"Americans are going to have to wake up and stand up. There may not be any high level leadership to show us the way – we are going to have to do it ourselves. Have we the courage?" – Stansberry Alliance member Cathy H.

"I have not replied to one of your Digests in a long time, but I had to respond today.

"My wife and I live in Michigan... You know, Whitmer's Michigan? We have three kids, one here in Michigan, and two in other states. One works in health care and we do worry about their constant chance of exposure, but being young and strong, I suspect they will be fine, but you know how parents can be about their kids.

"I am 64 years old, and I do take the virus seriously. My wife and I are doing what we should be doing to stay safe... though it is possible we were exposed back in December (one of our kids had been on a trip to Asia and came back with something like cold or flu-like symptoms). All that said, I tend to agree with most everything you wrote in today's Digest...

"It needs to be said. I would love to copy and paste the text from the Digest into my Facebook page giving you full credit, but I won't do that without your permission. There are a great many of us out here that give a damn about our Individual Liberty. And we are trying to use the written word to fight the battle as best we can. Reason and logic are in such short supply these days." – Paid-up subscriber Jeff H.

"Amen!! Thank you for saying what I've been trying to tell my family and employees for weeks. I own a restaurant and was ordered to close, losing everything we had built for over 14 years, laid off 90% of staff all for the 'big lie.' When we were kids growing up, if a kid in the neighborhood got chickenpox, your mom sent you over there to get it to get it over with, our parents knew how to handle these things and unfortunately it doesn't look like we have any adults handling this." – Paid-up subscriber David W.

"I found myself nodding in agreement with everything you were saying about liberty and the passion for it above all things. I agreed with your opinion on Vietnam, Hitler, The Salem Witch trials and the beautiful quote from C.S. Lewis.

"Only one problem. We were not prepared for this virus, we did not have the PPE, ventilators, adequate hospital facilities and the appropriate treatments to save the lives of those most vulnerable. We did not have processes in place to protect the elderly and those with existing conditions such as proper protections and procedures for those entering nursing homes.

"I also remember being young and feeling invincible. I put myself back into that mentality and I wonder if I would have really taken this seriously when I was around vulnerable people. We have learned a lot from this and hopefully next time these things will be in place to not have to shut down the country and all the horrible effects that has, but this time I am not so sure. This time I think our hospitals would have been overwhelmed and many people would have died lingering in hallways waiting for treatment." – Paid-up subscriber David L.

"This article is wrong in so many ways. I'm almost embarrassed to admit I even read Stansberry's Digest this week. I really appreciate good advice, but was really disappointed today, let me tell you why...

"I am a Firefighter/Training Officer and Medical First Responder on a Volunteer Fire Department. We do the same job as paid departments do, in fact, 80%+ Fire Departments in the U.S. are Volunteer. A few others and myself are the very first to see the very scared and sick needing help breathing.

"We see COVID-19 taking its toll on the young, the old and in between, first hand. Do you know what is seen over and over again by a lot of First Responders? People that didn't take the warnings seriously by our government officials, for many it was their last regret.

"For the rich and those that live only for the almighty dollar, this is a great opportunity to build their riches. And a great deal of people lost retirement security and so on. Make no mistake, this COVID-19 is a real Disaster and Emergency worldwide along with being very highly contagious like no other virus in modern history, no matter how it got here. This I mentioned is not a lie, I know, I have a front row seat." – Paid-up subscriber James H.

"The common denominator to mankind is sickness and death. I hope and pray this virus does not come to your door." – Paid-up subscriber Tim T.

"Interesting take on the current 'crisis.' I'm wondering though if this crisis is such a non-issue, why are there refrigerated morgue trucks outside of New York hospitals piled high with bodies? This even after all the 'drastic' actions taken to slow the spread.

"I've been around for quite a while and I don't recall that ever happening with the seasonal flu. Just sayin'." – Paid-up subscriber Larry V.

"I agree with most of all that Porter says. I struggle a bit with the flu analogy.

In 2015 to 2016, the Centers for Disease Control and Prevention (CDC) estimates that 30 million people got the flu and around 60,000 people died, or 0.2%.

"60,000 people died in a year while with this virus 37,000 people have died in about a month. So what could it be in a year? It may end up that because it is more infectious more people are getting infected but the mortality rate is about the same or perhaps even lower. The point is not the mortality rate. It is more about the number of people that end up requiring hospitalization and the health care system getting overwhelmed as it has been in NYC and a few other countries.

"As for children being largely safe, that appears to be fairly true but may also be because it hasn't been fully tested as schools were closed early on. Plus there is the argument about them being passive carriers and infecting their parents or grandparents.

"And not everyone over 50 or 60 who died had serious underlying problems. And do folks become expendable just because they are old?

"There are no easy answers." – Paid-up subscriber G.B.

Good investing,

Dan Ferris
Locked down in Vancouver, Washington
April 21, 2020