Wisdom from Richard Russell... Via Stansberry Research founder Porter Stansberry... The value of time... The wealthy investor's edge... What you must understand... A genius and a gentleman...
Editor's note: Today, as the Stansberry Research team continues to take some time off for the holiday season, we're sharing a guest essay from none other than Stansberry Research founder Porter Stansberry... In this essay, first published in the October 2 edition of Porter's Daily Journal – Porter's free e-letter over at his boutique investment firm, Porter & Co. – he shares "four laws of investing" courtesy of one of his favorite financial-newsletter writers of all time. Enjoy...
 Richard Russell's Dow Theory Letters was the first investment newsletter I ever read.
Russell was a legend. He started out writing for Barron's. Then, beginning in 1958 and continuing until his death in 2015, he wrote his Dow Theory Letter every month. Russell's investment theory was based on Dow's Theory. Charles Dow, who in 1889 began publishing the Wall Street Journal, created the very first stock index, the Dow Jones Industrial Average. There were only 12 stocks in the original index (today, there are 30). Dow also created a "rails" index, which now is called the Dow Jones Transportation Average. Dow believed that, using both indexes, you could predict when bull markets or bear markets were imminent. It's a trend-following strategy. When both the Dow Jones Industrial Average and the Dow Jones Transportation Average are trending higher, then a bull market is confirmed. When both indexes "break down" – that is, when both indexes make a new "lower low" or violate a 90-day moving average – then a bear market is confirmed. Russell followed this strategy for decades and then, in the late 1980s, as the markets changed – with technology and services becoming more economically important in the U.S. than manufacturing – he developed his own proprietary index he called the Primary Trend Index. Many investors relied on Russell's market prognostications, but I think the most insightful things he wrote were the surprisingly simple and timeless principles of successful investment. He distilled all of these ideas into a single essay, called "Rich Man, Poor Man." (You can read the whole thing, here.) 'Rich Man, Poor Man' – The four laws... The first law: Time matters most of all. "Compounding is the royal road to riches," Russell explained. "To compound successfully you need the following: perseverance in order to keep you firmly on the savings path. You need intelligence in order to understand what you are doing and why. And you need a knowledge of the mathematics tables in order to comprehend the amazing rewards that will come to you if you faithfully follow the compounding road. And, of course, you need time, time to allow the power of compounding to work for you. Remember, compounding only works through time." And the second? Don't lose money. Virtually everyone ends up losing money because most people do not understand how to mitigate risk and they cannot resist their own greed. If you doubt me, just ask any well-known local accountant. They see how much money most people lose on their "investments." As Russell wrote: "I can tell you that most people definitely do lose money, lose big time – in the stock market, in options and futures, in real estate, in bad loans, in mindless gambling, and in their own business." The third law isn't a simple rule, but it's a concept that's critically important. I explain it this way: the market doesn't owe you anything, and you can't make the market give you anything. The reason why wealthy investors are so much more likely to succeed is that they can afford to wait patiently for exactly the right opportunity. Russell wrote "The advantage that the wealthy investor enjoys is that he doesn't need the markets. I can't begin to tell you what a difference that makes, both in one's mental attitude and in the way one actually handles one's money." I've been working with investors for almost 30 years, and if there's absolutely one thing that sets apart the winners from the losers, it's that wealthy investors know what they're doing (they do not invest in things where they might lose money) – and they're patient. It takes a long time to build a good business. Or to build a great brand. Or to pioneer a new technology. Good investors understand that progress isn't always measured in this month's cash flow. How many times have I heard, "But Porter, that stock you recommended two years ago hasn't even moved yet..."? If you understood the business and if you knew it was making great progress, that wouldn't bother you in the least. I remember when I first began recommending distressed debt to my subscribers in the aftermath of the Great Financial Crisis. One deal that Steve Sjuggerud and I found was a PIMCO closed-end prime mortgage fund that was trading at about half of net asset value, and was yielding 29%. Steve mortgaged his house to buy it – and other, similar opportunities. We went on to average 37% annualized returns on those distressed bonds over the next two years, and many of these bonds paid out high yields for the next four or five years. But still, subscribers complained: Porter, those opportunities only come around about once every decade... That's right. The market doesn't often hand out free money. But it does happen often enough if you're rich and if you're patient. Funny how those two things – rich and patient – seem to go together. Maybe they're linked. Russell's fourth commandment is probably the hardest for average investors... You must become a fanatic for understanding an asset's intrinsic value and you must understand all the factors that create (or destroy) that value. There are different factors that matter for different kinds of assets. Take an oil well, for example. There are a dozen different factors, all of which can make an oil well either extremely valuable – or actually a liability. The kind of rock is critical. The size of the reservoir. The amount of water in the well. The amount of gas in the well. The distance to a pipeline or railhead. The type of crude oil. The type of gas. If all you know is the price of a stock or the yield of a bond, you don't know anything about the value of what you're buying. And you're almost guaranteed to lose money as a result. But if you can become an expert in three or four different kinds of assets, then you can become a great investor if you'll simply allocate to value. As Russell says: The wealthy investor tends to be an expert on values. When bonds are cheap and bond yields are irresistibly high, he buys bonds. When stocks are on the bargain table and stock yields are attractive, he buys stocks. When real estate is a great value, he buys real estate. When great art or fine jewelry or gold is on the 'give away' table, he buys art or diamonds or gold. In other words, the wealthy investor puts his money where the great values are. One final note about Richard Russell... When I was fired from my first job in financial research in January 1999 (my boss said I was the least entrepreneurial person he'd ever met – lol), I wrote to Russell asking if he'd consider taking me on as a research assistant for his newsletter. I wrote similarly to half a dozen other investment writers at the time. But Richard was the only person who ever wrote me back. He sent a handwritten note to me, not an email. He complimented my work (he'd been following me at The Fleet Street Letter). He told me I would become a big success in this business and he encouraged me to strike out on my own. Later that month, I wrote my first subscription pitch, The New Railroad, and launched my own newsletter. Richard Russell was a genius. And a gentleman.
Editor's note: If you want to put this wisdom into action right now, Porter is sharing details on one of the top investing opportunities he sees today – and it's the kind that doesn't come around very often... It's a group of 10 investments, poised to benefit from a Donald Trump presidency, that Porter says could deliver colossal returns over the next four years... but only if you get in now before anyone else knows about them... These "secret stocks" are connected to Trump's second term in ways that almost nobody outside his inner circle is aware of, Porter says... They are not the big, obvious opportunities that will clearly benefit from Trump's policies, but ones nobody else is telling you about. Porter has discussed these investments – which he says could deliver 10X returns – behind closed doors with some of America's savviest investors. He has seen Trump campaign insiders load up on them ahead of Inauguration Day. And now, for the first time in public, Porter is sharing the details about this story and these 10 recommendations to take advantage of what some are predicting will be a "boom unlike any in modern American history." You can hear the details from Porter in a new free presentation right here. As our team takes some deserved time off this week, we're taking a break from our 52-week highs list and the mailbag. But, as always, send your notes to feedback@stansberryresearch.com. Good investing, Porter Stansberry
Stevenson, Maryland
December 26, 2024 | 
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