Nick’s Note: If you’re following the market, you know the last few months have been volatile. During times like this, it’s important to have a rational plan that removes emotion from your investing strategy.
That’s why today, we’re sharing an important essay from PBRG friend and Strategic Investor editor E.B. Tucker that will help you sleep well at night as the market oscillates. Read on to see how you can come out of the storm better than anyone else…
By E.B. Tucker, editor, Strategic Investor
I spend 0% of my time worrying about—or preparing for—a crash. Here’s why…
I run a “barbell strategy” with my personal assets.
Picture a metal bar with weights on it.
On one side, I have real assets. These are physical gold, unleveraged property (if you owe on it, you don’t own it), and cash value on whole life insurance. These assets are incredibly boring, but they represent real wealth. I think it’s fair to include some stalwart stocks on this end of the barbell, too. And I also own world-class, dividend-paying stocks. These blue-chip stocks are so boring, I don’t even look up the quotes… They’re not about making huge gains—they’re just equity in big, stable firms.
The other side of the barbell is much more exciting and carries more risk. I’m in tons of private placements. I must have done six to eight last quarter… I have a massive position in a Canadian-listed gold royalty firm where I’m on the board and chair of the executive committee. The takeaway here is I have a lot of very high-risk investments that are paying big for me right now.
But these two ends of the barbell must be balanced to avoid catastrophe. When I have ABC mining stock shoot up 300% after I do a placement, I sell half of it or more. I take that money and split it between the ends of the barbell. I want to keep the real asset side balanced, then keep taking risks with the other side.
Real assets are real wealth. That’s why in December 2017, I advised my readers with any excessive crypto profits to sell at least the cost basis and buy real assets with it. When the tokens return to their actual value, you’ll have the real assets. In some cases, this could be $50–$100 million for young guys. They should consider buying a massive apartment complex with cash—which can always generate income through rent. As people age, they learn real assets are more important than speculative fliers.
Speculations will always be out there… But real assets are much harder to get control of.
Over time, you’d be surprised how good this strategy feels. If the stock market takes a 20% dive overnight, I don’t care. I probably won’t buy more… I’ll sit back and see what happens in the ensuing weeks, then make a buying decision when everyone is panicking.
Keep in mind that in 2009, I liquidated my retirement accounts (modest funds, as I was only 29 years old) and bought single-family rental homes in Ybor City in Tampa. I paid $10,000 for one home that had a mortgage on it for $165,000 the year prior. And I paid $25,000 for a seven-bedroom home that had a $250,000 mortgage default judgment on it. My point here is: People were panicking, and nobody was buying—that’s a market bottom.
If I didn’t have some cash then, I would’ve just been a guy who watched the real estate rot until someone started buying it a year or two later.
The third piece of my barbell strategy is the bar—me… My job is to determine what will generate new capital. I have to decide where to put new weight on the bar.
I have an office in Tampa shared with two of my friends. They worked at logistics company DHL years ago and came up with an idea related to cross-border shipping fulfillment. They took $20,000 in savings and started a company—and sold it to FedEx for $45 million seven years later.
The funny thing is, these guys have no clue what to do with money. Worse yet, they’re resistant to any guidance.
To be clear, I don’t offer guidance to anyone, ever. If people ask, I tell them what I think, which usually makes them uncomfortable. That’s a sign I’m right.
One terrible trade my suitemates can’t get enough of is shorting the S&P 500. Their logic is they’ll get a huge payday soon and be able to roll it into index funds for the next upcycle.
In the meantime, I’m running my barbell strategy and producing returns laughably higher than theirs.
With so much money, you’d think they’d have a plan; but they don’t. They’re blown around from idea to idea, trying to outsmart the market… Over time, this ends in tears.
So in closing, I’d encourage you to consider my barbell management strategy—especially in this current market climate.
Knowing you’ll still be wealthy no matter what the market does will help you sleep soundly in 2019.
Editor, Strategic Investor
P.S. Tonight at 8 p.m. ET, I’m going on record with my next big prediction during a free investment summit. In short, I believe we’re looking at the growth of a new market from essentially $0 to potentially $400 billion in a matter of years. And three well-positioned stocks are expected to take the lion’s share of profits.
You don’t want to miss this. Go here to register for free…
A legendary Wall Street trader just introduced an ingenious ploy to follow in the footsteps of Big Money…
He calls it the “13-X Trading System.”
Think of it as your reliable “cheat sheet” for predicting which stocks are about to skyrocket—several days or weeks in advance.