By The Gold Report
Source: Lior Gantz for Streetwise Reports 09/30/2017
Studying Warren Buffett’s investment principles, says Lior Gantz, founder of Wealth Research Group, will help investors navigate today’s volatile markets.
I’m 33 now, and I’ve been investing in stocks since I was 16 years old.
In that time, I presume that about 12 out of every 20 people I’ve spoken to
about investments have quit the equities world. Three of them still invest using
small amounts due to fear and always underperform the index. Four of the 20 invest
with all their might and generate good, consistent returns.
One out of 20 have the DNA of a winnerevery year, their portfolio grows bigger, outperforming the
known indexes, like the S&P 500.
Courtesy: JeremySiegel.com
Free Reports:
As you can vividly see from this incredible and historical chart, over
the long-term, publicly-traded businesses run by gifted management teams have
turned every $1 into $704,997 in two centuries, for an annualized gain of 6.6%.
Wealth Research Group’s refined
version of them called Wealth Stocks, have
returned 11.3%, which turns every $1 into $5,807,437,041 in the same period of
time.
Politicians were as corrupt back then as they are today. Bankers were
just as criminal-minded then as they are now. Insider information was
frequently used by crooks just as much as it is now. War was as common then as
it is today as a means of solving national conflicts. Fraud was as widespread
back then as it is in 2017. Manipulation and rigging are as old as the Bible.
Nothing has changed.
The bottom line is that you don’t have to fear the stock market itself,
for it works in spite of these things. What you need to be cautious of is how
you react to the stock market, because the “market” is basically
buyers and sellers all are humans or algorithms designed by humans just like
you and I.
The stock market is how the financially ignorant transfer their wealth
to the financially educatedthis is a sentence I have hung in my office, for
it reminds me that my No. 1 objective is to constantly improve and share my
insights with you.
Those 14 out of every 20 individuals will never get to enjoy that 6.6%
return, and it will cost those quitters hundreds of thousands (if not millions)
of dollars in the span of a lifetime, not to mention the damage of teaching
their children and loved ones that the stock market is nothing but a “casino.”
People only quit the stock market because of one reason: a catastrophic
loss.
The pain of losing hard-earned cash is too disturbing. It’s sometimes a
blow to one’s ego, and at other times, it’s an emotional drain to confide the
loss with a family member. No matter what it is, a catastrophic loss makes most
stop investing altogether.
Avoiding Horrible Red Screens
When I was 13, I was hired for the first time. The job was coaching
basketball to 6-year-olds, and I was the assistant coach.
The head coach was the talk of the town so I asked him one day how he
has this attractive demeanor about him, and he replied that for three years, he
was the assistant coach of the national basketball champions and learned from
their head coach what a winner’s DNA is.
He told me that if I wanted to be successful, the fastest way is to
closely study the most obvious success story in the field I want to excel at
and personalize the lessons I learned to my own character.
Three years later, at the age of 16, before making my first ever
investment, I asked my banker who the richest investor in the world was. That
banker was the first person to mention to me the name of Warren Buffett.
Books and documentaries about Warren are very interesting. His
interviews also shed light on his character, but if you want to give anyone the
most precious education at no cost, send them this link.
These are the annual letters Buffett writes to shareholders, which I
doubt more than 1% take the time to read, but for hedge fund managers
worldwide, it offers a glimpse into the mind of the man with the best long-term
track record in investment history and is mandatory reading.
I’ve read each of them, and here’s how Warren Buffett, a man who earns
billions of dollars every year, has avoided losing 50% of his money throughout
his career: HE HASN’T BEEN ABLE TO.
Yes, the world’s richest investor has suffered catastrophic losses in
his life, yet he reigns supreme.
Berkshire Hathaway’s stock dropped nearly 50% in 2008 and had numerous
20%40% corrections throughout its lifespan. Even so, every $1 invested with
Warren has turned into $119,574.
His four main principles that allowed him to succeed above and beyond
any man and weather through the madness of equity markets are:
<![if !supportLists]>1. <![endif]>Margin
of Safety:
Warren and Charlie Munger, Berkshire’s vice chair, buy cheap. They NEVER
overpay for a stock. The highest price they’re willing to pay is fair value
only in the case of a world-class business.
For example, Warren had a file on Heinz, the ketchup empire, going back
to 1980, but only made his move to acquire it a few years ago.
This discipline has saved him from chasing others into bubbles, and
knowing this will save you from doing the same.
The Buffett indicator is signaling that stocks, in general, are insanely
expensive:
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It’s very simple: when this ratio is above 90, do not buy S&P 500,
NASDAQ, or Dow Jones Industrial stocks unless they are somehow a complete
bargain.
By doing this, you eliminate much of the risk that new positions will
fall by 50% because you don’t buy expensive businesses.
But what about existing positions?
<![if !supportLists]>2. <![endif]>Steadfast
Conviction:
Before I explain this one, I want to make it clear that I have several
mentors and role modelsI believe in multiple because nobody is perfect and
each person has unique gifts. For example, Warren is such a workaholic that he
lost his wife over it. My marriage is sacred to me, and I budget my time
accordingly and court my wife daily. Warren has traveled the world in a
minimalist way and has rarely left the U.S.I’ve been to 34 countries and plan
to visit each of them eventually.
Observing new cultures and enjoying our beautiful planet is a priority
for me.
But when it comes to investments, Warrens conviction in the research he
puts into companies is admirable. He has owned certain stocks through thick and
thin, even at times when the whole world was against him, and he came out on
top.
When a business has a solid balance sheet, competent management, a clear
vision, and a competitive advantage, your one true enemy is doubtnot the
fluctuating price.
In the natural
resources sector, Rick Rule is definitely the equivalent of Warren Buffett.
That doesn’t mean he has never made a bad call or predicted price trends for
commodities incorrectlyno one has a clean slate.
What it does mean is that he has conviction and stands by top-quality
businesses for as long as it takes for them to unlock potential. In fact, he
told me numerous times that he never had a 1,000% or 10,000% gain (100-fold
profit) in which the company didn’t fall by 50% before making him millions.
Small-cap
companies are much more cyclical, therefore you need the third attribute of
success. . .
<![if !supportLists]>3. <![endif]>Patience
of a True Contrarian:
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Here’s a company I’ve traded in and out of for 14 years.
It’s used as an example, and I do not suggest putting money in it at
all.
I initially bought it in 2003 and sold for a massive gain in 2005. Then
I bought it again in 2007, at US$10.32, and watched it fall to US$1.12, a 90%
loss. But I kept my composure because the underlying business was intact, so I
accumulated more and saw it shoot up like a salmon out of the water and sold
most of it for US$64.31 seven full years later.
Believe me when I say that it takes patience to make 60 times your
money. At US$1.12, there were fewer buyers than ever. I knew it was curving a
bottom, just like I know gold and silver stocks are curving a bottom todaythere
are fewer buyers than ever.
<![if !vml]>
That’s why I am not cashing up in anticipation of the entire market
dropping all at once, like in 2008that was the exception, and not the rule.
My blueprint for the
coming crash surprises most.
The fact of the matter is that even hardcore gold bugs have lost
patience today. They’re desperate and hate gold themselves. They do not
understand how all the currency devaluation and central bank intervention has
not taken gold to $5,000 yet, and it reminds me of their attitude in 1999, as
they didn’t understand why people were paying ridiculous prices for stocks that
had no products.
They were right, but it doesn’t matterlogic has nothing to do with it.
Most gold investors finally gave up and sold at large loss just months
before the greatest bull market for gold began.
How did it start?
Investors in the NASDAQ took profits and rolled them into commodities.
Gold stocks DID NOT fall with the rest of the marketthey SOARED, acting as a
hedge, with 2008 being the exception.
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Chart courtesy of World Gold Council and Incrememtum
We’re curving the bottom. Either be patient or regret allowing your
emotions to get the better of you.
<![if !supportLists]>4. <![endif]>Position
Sizing and Stop Losses:
Warren Buffett only invests in companies that are profitable. It’s
easier to judge the balance sheet and stop your loss when you see the business
has lost its strength to heavy competition. That’s why Buffett sold IBMit was
losing out to other tech giants. Cutting losses is paramount.
He also sold a supermarket chain in Europe that he owned for a $2
billion loss a number of years ago. But for a company like Berkshire Hathaway,
which is worth $450 billion, that’s a 0.44% loss. That’s intelligent
position sizing.
With small-cap stocks, especially natural resource ones, profits only
occur with operating miners, but not with exploration plays, developers or
optionality plays.
With exploration, it’s all or nothing. With development-stage companies,
it’s about management proceeding and engineers getting their design right for
the mine.
With optionality plays, it’s about waiting for the commodity price to be
high enough that large-caps will buy you out.
But until that happens, it’s about the art of patience and careful
accumulation of an undervalued portfolio position.
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Chart courtesy of ZeroHedge
This is not the chart of Bitcoin. It is the net
worth of Warren Buffett through the years.
You really can’t see this, but between the ages of 43
and 44, he lost half his wealth.
In the big picture, it meant nothing. It was a bump in
the road because he kept implementing the principles that work: margin of
safety, steadfast conviction, patience of a true contrarian, and position
sizing/stop losses.
No other
newsletter in the world will put in front of you the brutal truth on one
hand and legitimate opportunities on the other. Wealth Research Group
will keep over-delivering for you as long as I’m alive and kicking.
See our latest report on the red-hot cannabis sector, as
California is about to legalize and the timing couldn’t be more ideal.
Look for mentors in life, learn from them, and make the
lessons your own. Then enjoy a life of wealth, and never look back.
Lior Gantz, the founder of Wealth Research Group, has built and runs numerous successful businesses and has traveled to over 30 countries in the past decade in pursuit of thrills and opportunities, gaining valuable knowledge and experience. He is an advocate of meticulous risk management, balanced asset allocation and proper position sizing. As a deep-value investor, Gantz loves researching businesses that are off the radar and completely unknown to most financial publications.
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Charts provided by Wealth Research Group