“Everyone has a plan until they get punched in the mouth.”
That famous quote comes from Mike Tyson.
During his heyday, “Iron Mike” built one of the most phenomenal track records in professional boxing.
He went 50-6 in a career spanning just over 20 years. He was the undisputed heavyweight champion from 1987 to 1990 and won six heavyweight belts.
His success came from a commitment to the fundamentals like shifting his weight… slipping by opponent’s punches… and letting his shorter size be an advantage, not a disadvantage.
We have a similar winning formula at our flagship Palm Beach Letter investment newsletter. We use asset allocation, asymmetric investing, and patience to beat the market. (I’ll tell you more about our winning formula below.)
Since Daily editor Teeka Tiwari took over the Palm Beach Letter in June 2016, our average annual return is 130.4%. Meanwhile, the annual return of the S&P 500 is 13.8%.
Here’s why I’m telling you about Tyson…
The market has hit investors with a flurry of punches the past three weeks…
First was Fitch’s downgrade of U.S. debt on August 2. It’s only the second time in history that U.S. debt has been downgraded.
The second punch came when Chinese property developer Evergrande filed for bankruptcy in March. Evergrande owns $256 billion of property in China.
The bankruptcy spurred fears of a real estate collapse in China, the world’s second-largest economy.
Crypto is also taking a hit. Bitcoin dropped from $29,000 to about $26,000 in the blink of an eye.
But it’s not uncommon for the market to come out swinging in August.
According to Morningstar, August has been the worst month for stocks since 1986 – with an average drawdown of -0.8%.
If you have the right investment strategy, market sell-offs are an opportunity. Especially when you have a game plan like Tyson had in the boxing ring.
Today, I’ll show you how one of our stocks hit a new 52-week high even as the market took a beating. But first, let me go over the formula that set up this win for us in the first place.
Asset Allocation: A Robust Defense
Just like Tyson focused on speed, avoiding punches, and landing unexpected blows, we focus on investments with strong fundamentals and take advantage of asymmetric opportunities (more on these below).
The first fundamental is to have a sound and diverse investment portfolio.
At The Palm Beach Letter, we’ve built a diverse portfolio. It includes stocks, bonds, real estate, and also alternative assets like cryptocurrencies and collectibles.
Those latter assets are what we call asymmetric investments. They’re small investments that can see a big move higher over time.
That diversification helps reduce short-term market pain. After all, there’s usually some assets that are trending higher even when stocks sell off.
Our asset allocation model is broken into three broad classes:
Equities (50%): Here we focus on blue-chip stocks with above-average dividends or growth stocks with high upside potential.
Fixed Income (20%): We identify reliable assets with inflation-beating yields, as well as real estate.
Alternatives (30%): These are a mix of asymmetric ideas with huge potential upside (i.e., cryptos, private deals, etc.) and financial safe havens that offer long-term outperformance (i.e., collectibles, precious metals, etc.).
Our plan has given us market-beating returns over time. Year-to-date, we’ve had a gain of 12%, including closed trades.
That’s just slightly double a traditional 60/40 portfolio (60% stocks, 40% bonds), which is up 6.2% in 2023.
As for buying specific positions, that’s where we take advantage of the market’s trends…
Buying Knocked-Down Assets
We like to buy assets when they’re out of favor. In other words, when they get knocked down by the market, we’re ready to make our move.
We know that time and again, what’s out of favor will come back into favor. A little patience can translate into big profits over time.
For instance, we started buying bonds last year in The Palm Beach Letter. And we’ve written about it to you here several times as well.
That’s because they became such a hated asset class that investors totally wrote them off… even when they started to offer some of the best returns out there.
Last year, I bonds, Treasury bonds with a component tied to inflation, soared to yields of 9.6%.
Today, the yield is lower. But so is inflation. It’s down to 3.2%.
That means short-term U.S. Treasury bonds offering 4–5% yields now offer positive returns over inflation. And the I bond’s current 4.3% rate still does too. But the bargain isn’t as good as it was last year.
In the stock market, entire sectors can go in and out of favor with the market. When one sector gets knocked down, we look for buying opportunities. Chances are it’ll become a winner in time, often when other assets take a dive.
That’s why we’re seeing one of our stocks, Civitas Resources (CIVI), trend higher here.
The Civitas Story
We bought Civitas in November 2021, back when it was still Bonanza Creek Energy, an oil and gas exploration and production company.
Energy was an out-of-favor sector at the time. Investors expected poor returns following oil’s poor performance in 2020 and 2021.
We were attracted to the company for its key fundamentals: a strong valuation, its growth-oriented business plan, and as a play on the emerging energy market. It seemed clear that energy prices would hold up well amid high inflation.
In 2022, energy was the only sector to post a gain.
In 2023, energy has been more of a laggard. But we’re still seeing shares trend higher as OPEC has cut production and amid a decline in global oil inventories.
Thanks to shares moving higher this month, we’re up over 123% in total.
Civitas is now a position in our “Free Ride” portfolio. A free ride is a position where we’ve taken profits equal or greater to our original stake.
Of course, since we’re up so much on Civitas shares already, you shouldn’t buy it today. The value just isn’t as good, even though there’s still further upside.
In that sense, it’s like the other free ride we own that’s had a phenomenal run this year – chipmaker Nvidia (NVDA).
Thanks to our allocation model and investment strategy, our Free Ride portfolio will include more positions in the months and years ahead…
That includes stocks we’ve added this year to take advantage of today’s top trends.
Plus, next year’s bitcoin halving should see our crypto holdings explode in value. That will further add more free rides.
When you follow an asset allocation strategy and buy great companies and crypto projects when they’re out of favor, you can’t help but make market-beating returns and life-changing wealth over time.
That’s the power of sticking to the fundamentals. It keeps a blow from knocking you out of the ring entirely.
It’s what champions like Mike Tyson do. And it’s a lot easier to do it with your investments than in the boxing ring.
Analyst, Palm Beach Daily