Editor's note: Everyone wants to earn the best possible grade in school...

Or at least, they should.

The same is true in investing, except your performance matters much more. If you fail, you could lose your entire life savings in the blink of an eye. On the flip side, if you work hard to build – and maintain – an "A" portfolio, you'll live comfortably through your retirement.

Today's Masters Series is adapted from the July 2018 of Stansberry Portfolio Solutions. In it, senior portfolio manager Austin Root details his introduction to Wall Street years ago... explains a great rule that he learned from that experience... and walks through three simple steps you can follow to optimize your investment returns over the long term...

Three Steps to Making Sure Your Portfolio Earns an 'A'

By Austin Root, senior portfolio manager, Stansberry Research

Within my first 15 minutes on Wall Street, I had an experience that changed my life forever.

I was fresh out of college and had just moved from Ohio to New York. I had been fortunate to land an investment-banking job with Blackstone Group – the venerable, secretive, and powerful firm started by legendary financiers Pete Peterson and Steve Schwarzman.

(Today, Blackstone is the largest alternative asset manager in the world, with more than $550 billion in assets under management today. The company specializes in private equity, real estate, credit, and hedge-fund investment strategies, and provided the initial capital to start BlackRock, the world's largest asset manager, with more than $6 trillion in assets.)

When I arrived at 345 Park Avenue that morning, I was immediately escorted to a large conference room. As I waited, a dozen other new banking hires trickled in...

Most of my colleagues had just graduated from Ivy League schools, with job offers from Wall Street's top investment banks. We were all young, wearing our best suits, and eager to start our Wall Street careers.

And then he walked in...

Schwarzman – one of the most powerful men on Wall Street – was there to meet us in person on our first day. The room went silent. He sat down at the head of the table. He smiled and briefly welcomed us. Then he delivered a message I will never forget...

I've seen all your resumes and college transcripts. You're an impressive group... But it hasn't all been perfect, has it? Most of you got some A-minuses in school. Some of you averaged A-minuses. Let me tell you something right now. The Blackstone Group is NOT an A-minus firm. A-minus work will NOT cut it here... So you had better turn it up a notch if you are to succeed. Now, let's get to it.

And with that, he got up from the table and left the room.

When the feeling returned to my extremities, I remember thinking that Schwarzman wouldn't be my first choice to deliver a commencement speech or pep talk at halftime. The CEO had already crushed our spirits on the first day of our brand-new careers. He all but ensured we now wouldn't give our best, I thought... because apparently, our best wasn't good enough.

But something funny happened...

I found myself caring more about the job. And I found that what I thought was my best could actually get better. As harsh as that first speech was, it was exactly what we needed to hear. With brutal honesty, Schwarzman set the tone right from the outset. He let us know that Blackstone was a special place and required more from us than a typical job.

But more broadly, his speech provided a great rule to live by... Demand more from yourself and you will get more.

Since I first met Stansberry Research founder Porter Stansberry nearly a decade ago, I've seen that same work ethic run deeply through him and the rest of our company. Porter, Dr. David "Doc" Eifrig, Steve Sjuggerud, and all the folks here work as hard as they can to give you "A-plus" investment advice.

You may be wondering how to evaluate your investing results. Here are the three steps you must follow to answer that...

1. Establish clear investment goals.

Your approach to investing will differ greatly if your primary goal is to conservatively preserve your wealth as opposed to aggressively growing your long-term portfolio.

Another key part to goal-oriented investing is that you need to establish realistic goals. We're now 10-plus years into a bull market in which the total return for the S&P 500 Index is more than 400% (or more than 17% per year, assuming reinvested dividends).

Don't expect returns anywhere near that level over the next 10 years. Set your investment goals based on mid-single-digit annual returns from stocks and low-single-digit returns from bonds. You can't ever produce grade-A portfolio results if your goals are unrealistic.

2. Do the work and stick to your plan.

Doing the work means doing enough research to know what you own and why.

I dedicated the May 18, 2018 Digest to this topic. In short, when you have a deeper level of understanding about what you own, it empowers you to make better decisions.

This is particularly important during times of heightened market panic or greed. It will give you courage in your convictions to drown out the market noise.

The other part of this step is sticking to your plan...

This means buying securities that fit your goals. You invest big when you are certain an excellent opportunity is presenting itself. This also means you must have the discipline to sell. Get out when you hit your stops, or when the story changes and your original investment thesis no longer holds.

Respect the macro environment. Volatility and market drawdowns will inevitably occur, so it's vital to protect your portfolio.

3. Evaluate your performance over a complete market cycle.

The third step is the simplest – but in my experience, it's also the hardest for most investors to actually follow.

A complete market cycle contains both a bull and a bear market. Using this longer-term "lens" enables you to see how your investing performs in good times and bad.

This is critical... An aggressive strategy that performs magnificently in bull markets but crashes in bear markets will often leave you worse off than a "steady Eddie" approach.

Consider famous investor Bill Miller...

Miller's mutual fund Legg Mason Capital Management Value Trust outperformed the S&P 500 every year from 1991 through 2005. Over this period, Miller averaged returns of more than 16% per year, easily besting the market's 11% annual gains. The combined longevity of this streak and magnitude of outperformance has never been matched by another manager... and likely never will.

But here's the thing...

The vast majority of this outperformance came during a bull market from 1991 through 1999. And once the true bear market of 2007-2008 hit, Miller's fund cratered... so much so that if you owned his fund for the entire 20-year period from 1991 through the end of 2010, you barely beat the S&P 500. Massive underperformance during the bear market all but eliminated the historically excellent streak of outperformance during the bull market.

Assess your returns over a full cycle. This doesn't mean you can't make interim evaluations and changes when necessary... But reserve final judgment until you get through the full cycle.

Your path to optimizing and then evaluating your returns starts with these three steps.

Of course, at Stansberry Research, we do our best to give you the tools to successfully perform the first two steps... But it's up to you to have the fortitude to complete the third.

Good investing,

Austin Root

Editor's note: Full access to all of our work in Stansberry Portfolio Solutions is just one of the many benefits of joining the Stansberry Alliance. Membership includes just about everything we publish today, plus everything new we publish in the future... for life.

Normally, an Alliance partnership is only available to the top 1% of our subscribers – by invitation only. But next week, we're offering a 72-hour "open enrollment" period before we raise the one-time entry fee in 2020. Porter, Doc, and Steve will share all the specifics in a special broadcast on December 18 at 9:30 a.m. Eastern time. Get the details right here.