The power of one thing... There's a bear market everywhere... Secret of a Hall of Fame investment... Lose less to win more... Why low-correlation investing is important today... A special invitation... Editor's note: Today, we bring you a guest essay from someone who may be a familiar name to you... Austin Root, the chief investment officer at Stansberry Asset Management ("SAM"). Austin worked for Stansberry Research for five years, most recently as our director of research from 2019 to 2021, and managed our Portfolio Solutions products, among other things. Last year, he joined the staff at SAM, a New York-based money-management firm – separate from our publishing business – that uses our research and ideas, and other sources, to help manage client portfolios. The folks at SAM have an interesting event coming up next Tuesday. Today, Austin shares the details... in the context of the one idea he believes folks should understand about how to win in today's challenging market. (And for those wondering about why Dan Ferris isn't writing to you today... don't fret... Dan will come to you on Monday with his weekly missive.) Share one thing... The first time my good friend and Stansberry Research founder Porter Stansberry asked me (Austin Root) to fill in for him and write a Friday Digest, this was his suggestion... "Just tell our subscribers, simply and directly, one thing that will help them make better decisions," he said. One thing. It was 2018, and I had been working for Stansberry Research for about a year. I'll admit that I was intimidated. It wasn't that I was lacking ideas... Over the prior 20 years, I had the great privilege to work with some of the best investors on the planet at firms like Tiger Management, SAC Capital Advisors, Soros Fund Management, and Blackstone. I was eager to share some of the best practices and lessons I'd learned from those investing legends. But the Digest was sacred ground... It's one of the few opportunities to speak to all subscribers at once. That's why that advice – to laser focus on one useful idea – was so valuable. It helped clarify my mission. I provided what I viewed as the one thing that would be most helpful for investors to hear at that time. I explained that in a time of heightened market volatility brought about in part by an increasingly hawkish Federal Reserve (sound familiar?), it was time to stop haphazardly "renting" stocks. Instead, you needed to do the work to be able to know and "own" them. I stand by that view today. Now, four years later, I have another chance to write a guest Digest... And it's still a little intimidating. So I'm going back to that one key goal... Today, I want to share the one thing... the most important advice... that I suggest all investors consider to bulletproof their portfolios in this incredibly challenging time. To get there, let's start with a phrase you've likely heard uttered dozens of times before... 'There's always a bull market somewhere'... At least I know I've heard this phrase more times than I'm eager to admit. It's repeated by CNBC's Jim Cramer at the beginning and end of every episode of his Mad Money show. The idea behind the phrase is that there is always a profitable investment opportunity out there... somewhere. If, for instance, high-tech growth stocks aren't going up, then maybe more defensive value stocks are on the rise. Or maybe the bond market is providing sturdy returns. Or gold. Or cryptos. It's an optimistic thought. Uplifting, even. Only, it hasn't worked this year. Apart from a big bounce in stocks yesterday, for most investors, it seems like nothing is working... Or if you prefer Cramer's parlance: There's a bear market everywhere. Stocks and bonds have both been dreadful this year. Take the 60/40 portfolio. This (formerly) popular strategy allocates 60% of its capital to stocks and 40% to bonds. You're likely familiar with the logic... You get the upside of stocks – which go up most of the time in the long term – but you get the protection of bonds when stocks aren't doing well. Bonds generally do perform well in those "risk off" environments. Except that's not what has happened this year. Instead, the 60/40 "balanced" portfolio has suffered major losses and taken on water from both sides of the boat. Together, that has meant this year has been as bad as the great financial crisis for the 60/40 portfolio... and you'd have to go back to the Great Depression to find worse performance. You see, while bonds were modestly up in 2008 – providing a counterweight to the stock market freefall – this year, bonds have dropped in tandem with stocks... Now, there are alternative asset classes you could invest in, of course... Gold and real estate are among the most popular. But gold is also down for the year. Real estate investment trusts ("REITs") have been trounced. Even home prices are now dropping. And let's not talk about cryptos. Nothing is working. Well, almost nothing... Today's market is among the most challenging I've seen in my career. What has worked in the past isn't working anymore... You need a different approach to succeed... Today, I'm thrilled to share with you a new approach that I believe can make a huge improvement in your investment results. It's the same approach I used for my "Hall of Fame" investment. In addition to serving as director of research and portfolio manager for Portfolio Solutions at Stansberry Research, I was also the editor of American Moonshots – a publication where I identified smaller companies with huge upside potential and long runways for growth. This publication is where I recommended what turned out to be a Stansberry Research Hall of Fame pick. You've probably seen the Hall of Fame table at the bottom of the Digest. It's reserved for the top-10 highest-returning closed positions in the history of the company. The stock was Intellia Therapeutics (NTLA). It's a genome-editing company focused on using CRISPR and other gene-editing technologies to develop therapeutics. The company's work is being used to find treatments for sickle cell disease, hemophilia, ocular diseases, leukemia, and other cancers. The stock rose 775% in just under two years... I am pleased with that result, and hopefully you had the chance to take advantage of it and other big winners in Moonshots. But the point of this example is not to do a victory lap. (I also want to clarify that I am using Intellia merely as an example, and no SAM investment advisory client holds a position in any SAM investment account, nor am I making a recommendation on the stock today.) But here's the part that's relevant for today... You might think that huge gains are only possible in a raging bull market. For most stocks, that's true. But for a select group of investments – the ones I'm going to tell you about right now – you can profit whether the market is up, down, or sideways. So here's the one thing, my top suggestion, in three words. Lower your correlation... More specifically and expansively... in today's challenging market environment, the best way to protect and grow your nest egg is to invest in assets that have low correlations with one another. That's it. That's the secret. And yet, so few investors have been able to do this right now. So we need to dig deeper to explain precisely why this idea is my most important thing to think about in the market today. We need to address three questions... What does low correlation actually mean?... Why is it important?... And how do I do it? Zigging when other things are zagging... Correlation simply means the degree that investments move together. The higher the correlation of two assets, the more they move in tandem, up or down. The lower the correlation, the less they move together. (And if two assets have a negative correlation, that means that when one asset goes up, the other tends to go down.) Most individual stocks have a high correlation to one another and to the overall stock market. You've probably observed this in your own portfolio. Pull up your holdings on a strong day for the overall market, and you're likely to find most of your stocks in the green. On an up day, that's great. But on a down day, the reverse is true. Highly correlated stocks will likely be in the red. And this year, there have been a lot more down times than up. And as we've shown with the conventional 60/40 portfolio, high correlation has also been a problem in the bond market this year. As the Fed has aggressively hiked rates, stock prices have been pressured as companies face higher borrowing costs, strained consumers, and a slowing economy. The Fed tightening has also caused the value of bonds to plunge. Remember, as interest rates go up, bond prices go down. And with interest rates near zero prior to the Fed's hiking blitz, bond prices this year have cratered. The same can be said for gold and REITs. We at SAM are believers in gold as a store of value over the long term. But you can see that if we go from an environment where an investor can earn virtually nothing in U.S. T-bills to earning more than 4%, that would be a headwind for owning gold. Sure, there will always be folks who hold their gold no matter what, but the incremental buyer has a tougher choice now. And it's the incremental buyer who sets the price. Same goes for REITs. It makes sense that REITs have also been highly correlated with stocks, bonds, and gold in this environment, given their main appeal over the years has been a sturdy dividend yield. If I can get over 4% in safe, short-term paper, then I need more yield from REITs. And the market's way to get that higher yield is to send REIT prices lower, along with everything else. Lowering your correlation can reduce the size of your losses... This is the first reason why this strategy is so important. As billionaire investor Leon Cooperman likes to say, "In a bear market, he who loses least, wins." Investing in less-correlated assets enables you to lose less. Remember, it becomes exponentially harder to make your money back the bigger your losses are... If you lose 20% of your capital, you need to return 25% on the remaining portfolio to get back to even... If you lose 50%, you need a 100% gain to get back to square... and if you lose 75%, you need a 300% gain to get back to even. Reducing the size of your losses is mission critical to keeping what you have. But it turns out that losing less is also of huge help for growing your assets... How? Well, the math above is the first part of the answer. The shallower the loss, the less gain you need to get back to even. And the same dynamic works to your benefit pursuing upside as well. Said differently, the same level of gain will have a much bigger positive impact on a portfolio that has protected itself from losses than one that hasn't. There's another related benefit to this low correlation approach: over time, smoother, more consistent returns will outperform volatile ups and downs even if the smoother returns generate lower average returns on an annual basis. This might be hard to believe but it's true. Consider the following extreme example... Investors A and B each start with $100 and keep it invested for 20 years straight. Investor A has very volatile returns: in odd years, he gains 24% on his portfolio, and in even years, he loses 22%. But given that we know it's tough to come back from big losses – even though his average gain is 1% per year (24% minus 22% divided by two) – at the end of 20 years, his total portfolio is worth about $72, less than what he started with. That's because you need bigger percentage gains to reclaim the same percentage losses... Investor B, on the other hand, invests in assets with low but steady returns. She invests in assets that generate 0.5% every year. Even though her average return is lower, her aggregate return is much higher. After 20 years of squeaking out small gains, Investor B will have about $111. Therein lies the beauty of low-correlation investments... Adding the right asset to your portfolio mix can lower your losses in lean times, smooth out your returns overall, and thereby catapult your portfolio to higher gains over the total investment period. As the chief investment officer of Stansberry Asset Management, I've been using this strategy to reduce risk for SAM clients throughout 2022. And low-correlation investments have helped propel a number of SAM clients to experience outperformance relative to the market this year. So, how do you find low-correlation investments?... First, let me be clear. No investment that generates a decent return is without risk. There are no free lunches. So the key to finding low- and no-correlation investments is looking for those investments that have idiosyncratic risk. That is, find investments that will go up and down based on factors particular to them, not the rest of the market. Take Intellia as an example. The potential for its gain isn't as much tied to the market in general as it is to whether the company is having scientific success. If Intellia develops an effective treatment for sickle cell disease or leukemia, those therapies are going to be in demand, no matter what the Fed is doing. Even in the midst of a terrible market, the stock would likely soar. Investing in transformational medicine is one example of low-correlation investing. But given the inherent volatility of the outcomes, it's a strategy we typically employ at SAM only in our most long-term focused portfolios. (Again, I'm not recommending this stock today. This is just one example of low correlation and is not intended to represent SAM's investment performance.) But the good news is that there are several types of low-correlation investments besides shares of transformational medicine companies. These aren't always easy to identify. And unfortunately, they won't typically give you "Hall of Fame" gains (although nice double-digit profits are common). But as we showed above, we don't need that to materially outperform over time... What we're really after is taking back control of your investments in a market that often feels out of control. Traditional methods of investing won't land on these opportunities... We can't simply look at earnings ratios, cash flows, or revenue growth. You need to know exactly what you're looking for. Successful low-correlation investing takes some effort. But the benefits are well worth taking the time to learn. Incorporating this knowledge into your existing investment portfolio can be a game-changer... and it's an idea worthy of more discussion... That's why Stansberry Asset Management is hosting a special webinar next week, on Tuesday, November 15, to provide more details about what low-correlation assets are, how to spot them, and what SAM is all about, too. If you're not familiar with SAM, allow me a brief description... (I'd also recommend listening to my recent interview with Dan Ferris on the Stansberry Investor Hour podcast here for greater detail and a fun discussion.) As longtime readers know, SAM is a money-management firm – separate from Stansberry Research's business – that uses the investment research and ideas from Stansberry Research, as well as other sources, to manage the portfolios of our clients. Now, you might not want to become a client of ours. I get it. Maybe you do just fine managing your own money... SAM might not be for everyone. With that said, I'm still excited to share our latest ideas with you on Tuesday. In the webinar, viewers will learn about my favorite low-correlation strategies that are working to help folks "lose less" and position their portfolios for growth. I will take today's "one thing" and expand on it... I'll also provide viewers with the details on three specific, actionable investments that I love right now. If you're at all interested, simply click this link to register for free. The webinar will begin at 7 p.m. Eastern time on Tuesday. Before I finish, I must cover one more item... First, I want to reiterate that I loved my time at Stansberry Research... The years I spent with the company were some of the most rewarding of my career. And that includes my time working at places like Blackstone, Soros Fund Management, SAC Capital Advisors, and Tiger Management. Through my work at Stansberry Research, I've realized that my life's purpose is delivering world-class financial services and advice to individual investors. And over time, I realized that the best way that I personally can do that – on an individual basis to my clients – is as an investment adviser and fiduciary. And there's no better place to do that than SAM. But I'll reiterate what I've said before: While Stansberry Research might not have been the final home for my career, I believe that it IS the best place for you to be getting your investment research... Just like, frankly, it's the best place for us at SAM to get our research. So, I hope you'll join me for the webinar. Not only will you learn about my favorite low-correlation investments, but I will also share insight on how we take the great research produced at Stansberry Research and marry it with our own analyses... and, more importantly, how we put all those great ideas together into one cohesive portfolio for our clients. I hope you'll join me. Again, you can sign up for free here. Recommended Links: | Huge Inflation Loophole (See These Charts) Amid today's market turmoil, THIS is one of the biggest and most bullish opportunities today: a red-hot sector with almost unlimited pricing power and a history of outperforming in times of high inflation. It's also the sector where Dr. David Eifrig spent half his professional life, meaning he's extremely qualified to spot world-class opportunities today. Take a look at the evidence here. | |
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| New 52-week highs (as of 11/10/22): Booz Allen Hamilton (BAH), Biogen (BIIB), Covenant Logistics (CVLG), Comfort Systems USA (FIX), Flowers Foods (FLO), Gilead Sciences (GILD), W.W. Grainger (GWW), O'Reilly Automotive (ORLY), and Ryder System (R). In today's mailbag, some feedback on the Federal Reserve, inflation, and yesterday's big rally in U.S. stocks... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "Federal Reserve, 'We want 2% inflation per year.' Really? So in 50 or less years our dollar is worth nada, zero, nothing! END THE FED!" – Paid-up subscriber Mark M. "The supply side story of inflation remains the same, or does it? I've been sharing how the supply side headwinds have been the most important factor with Inflation. It's a global geopolitical story. We still have the war, supply chain constraints, and just today news from China on COVID easing. "Our Fed raised rates rapidly above 4% to move a month/month CPI decrease a mere .3% down. That's a scary ratio! To get to a target of 2% the ratio of rate hikes to move CPI down even more is a quite high rate hike trajectory. This is if we are looking at the inflation rate being a Fed-based story only. The fact that the housing component remains stubborn is not helping. I don't see energy prices easing. Oil is posited to actually go up with a China reopening. "The key market driver will be news of the supply chain flows being restored. This lack of supply has been the biggest global inflation driver of all. It's always been a story about too much Demand chasing too few Supplies for inflation of asset prices. "I'm reminded of Marc Chaikin's comment on the markets trading on 'hopium'. We got a mere .3% move down and the market reacted as if the inflation rate dropped 50%. The 'roulette' metaphor is equally an excellent analogy... "I wouldn't be surprised at all to see shipping ports across the globe becoming super congested with a China reopening. Dock workers will gain leverage in this scenario and will impact supply flows. Transportation will face bottlenecks again... "This is where the real power lies and how this planet truly operates. It's a very old story of how this planet truly operates on trade and power of economic gains... Fixing the supply chain is the better solution for fixing global inflation." – Paid-up subscriber Rodger G. Warmest regards, Austin Root Towson, Maryland November 11, 2022 About Stansberry Research and SAM. Stansberry Asset Management ("SAM") is a Registered Investment Advisor with the United States Securities and Exchange Commission. File number: 801-107061. Such registration does not imply any level of skill or training. This content has been prepared by SAM and is for informational purposes only. Under no circumstances should this report or any information herein be construed as investment advice, or as an offer to sell or the solicitation of an offer to buy any securities or other financial instruments. SAM's management team is responsible for the investment decisions of SAM. The members of SAM's management team are not officers or editors of Stansberry Research and have no financial interest in Stansberry Research. An arrangement exists under which Stansberry Research will be compensated by SAM for SAM's use of the "Stansberry" name, for marketing to Stansberry Research subscribers, and in certain instances if a reader enters into an investment advisory relationship with SAM. Additional information about this arrangement and Stansberry Research will be furnished upon request. Although SAM will utilize investment research published by Stansberry Research, SAM has no special or early access to such research. It receives information from Stansberry Research just like any other subscriber does – after the issues are published. The statements and views expressed herein may not express current views or positions. In addition, the views expressed may be historic or forward-looking in nature, may reflect significant assumptions and subjective judgments, and are subject to change without notice. SAM does not undertake to revise or update this information in any way. In some circumstances, this report may employ data derived from third-party sources. No representation is made as to the accuracy of such information and the use of such information in no way implies an endorsement of the source of such information or its validity. For more information, click here. Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios Stock | Buy Date | Return | Publication | Analyst |
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ADP Automatic Data | 10/09/08 | 896.3% | Extreme Value | Ferris | MSFT Microsoft | 11/11/10 | 868.7% | Retirement Millionaire | Doc | MSFT Microsoft | 02/10/12 | 745.4% | Stansberry's Investment Advisory | Porter | HSY Hershey | 12/07/07 | 538.9% | Stansberry's Investment Advisory | Porter | ETH/USD Ethereum | 02/21/20 | 476.9% | Stansberry Innovations Report | Wade | AFG American Financial | 10/12/12 | 464.7% | Stansberry's Investment Advisory | Porter | BRK.B Berkshire Hathaway | 04/01/09 | 437.6% | Retirement Millionaire | Doc | WRB W.R. Berkley | 03/16/12 | 413.9% | Stansberry's Investment Advisory | Porter | ALS-T Altius Minerals | 02/16/09 | 303.9% | Extreme Value | Ferris | FSMEX Fidelity Sel Med | 09/03/08 | 275.6% | Retirement Millionaire | Doc |
Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio. Top 10 Totals |
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4 | Stansberry's Investment Advisory | Porter | 3 | Retirement Millionaire | Doc | 2 | Extreme Value | Ferris | 1 | Stansberry Innovations Report | Wade | Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Stock | Buy Date | Return | Publication | Analyst |
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ETH/USD Ethereum | 12/07/18 | 1,140.3% | Crypto Capital | Wade | ONE-USD Harmony | 12/16/19 | 1,117.5% | Crypto Capital | Wade | POLY/USD Polymath | 05/19/20 | 1,068.1% | Crypto Capital | Wade | MATIC/USD Polygon | 02/25/21 | 927.6% | Crypto Capital | Wade | TONE/USD TE-FOOD | 12/17/19 | 445.4% | Crypto Capital | Wade |
Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio. Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios Investment | Symbol | Duration | Gain | Publication | Analyst |
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Nvidia^* | NVDA | 5.96 years | 1,466% | Venture Tech. | Lashmet | Band Protocol crypto | 0.32 years | 1,169% | Crypto Capital | Wade | Terra crypto | 0.41 years | 1,164% | Crypto Capital | Wade | Inovio Pharma.^ | INO | 1.01 years | 1,139% | Venture Tech. | Lashmet | Seabridge Gold^ | SA | 4.20 years | 995% | Sjug Conf. | Sjuggerud | Frontier crypto | 0.08 years | 978% | Crypto Capital | Wade | Binance Coin crypto | 1.78 years | 963% | Crypto Capital | Wade | Nvidia^* | NVDA | 4.12 years | 777% | Venture Tech. | Lashmet | Intellia Therapeutics | NTLA | 1.95 years | 775% | Amer. Moonshots | Root | Rite Aid 8.5% bond | 4.97 years | 773% | True Income | Williams |
^ These gains occurred with a partial position in the respective stocks. * The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. |