Editor's note: We've said it before in DailyWealth – tough times in the markets set the stage for opportunity. Our founder Porter Stansberry just returned to cover why most folks are unprepared for the crisis he sees brewing... But, as he explains, it doesn't have to wipe out your investments. Instead, you can position yourself to profit for years – even while others are struggling.
That's why today, we're sharing another excerpt from the July 28 issue of The Big Secret on Wall Street at Porter & Co. In it, Porter reveals why one type of investment should be the cornerstone of your wealth-building strategy – and why now is the best time to put it to work...
When asked what we should do about the poor, Ayn Rand offered this sage advice: "Don't be one of them."
You have the same option when facing our country's looming financial collapse and the economic and political chaos that will follow.
Just don't be one of them.
Ironically, while the crisis will spell doom for most people in our country – anyone foolish enough to believe what the government tells them – for anyone who understands economics and investing, there's hardly been a better time in history.
As the middle class disappears, our portfolios will soar.
That's because – along with riots and rampant inflation – we'll also see the rise of an even bigger, unstoppable force...
The more money the government prints, the bigger the relative advantage of high-quality, capital-efficient businesses – companies that have the ability to raise prices without the corresponding increase to their own costs.
When societal and monetary chaos is in the air, this strategy shines. And though we can't predict exactly when these periods will arrive, we can identify times – like today – when they are far more likely to occur...
This philosophy was perhaps best summed up by Warren Buffett – chairman and CEO of Berkshire Hathaway and the world's most successful long-term investor – in his 1996 letter to investors...
Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, ten, and twenty years from now. Over time, you will find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock... Though it's seldom recognized, this is the exact approach that has produced gains for Berkshire shareholders.
In other words, we aim to buy ultra-high-quality businesses at fair prices and hold them for the long term. This strategy works in virtually any economic environment. But... in a roaring inflationary environment, it works best.
Buffett describes these kinds of companies as "Inevitables."
These businesses have such powerful internal economics and entrenched competitive advantages that they are likely to continue to dominate their industries – and compound investors' wealth at high rates of return – over the long term... regardless of what is going on in the economy or markets. The key to success is simply not to pay too much for them.
In that same letter, Buffett cited the examples of Coca-Cola and Gillette – two of his favorite long-term investments – to highlight these traits...
Forecasters may differ a bit in their predictions of exactly how much soft drink or shaving-equipment business these companies will be doing in ten or twenty years... In the end, however, no sensible observer – not even these companies' most vigorous competitors, assuming they are assessing the matter honestly – questions that Coke and Gillette will dominate their fields worldwide for an investment lifetime. Indeed, their dominance will probably strengthen. Both companies have significantly expanded their already huge shares of market during the past ten years, and all signs point to their repeating that performance in the next decade.
Beloved chocolate maker Hershey is another classic example of this kind of business. Longtime followers of my work may recall I initially recommended shares in November 2007.
That was right at the last big peak in stock prices before the global financial crisis – arguably one of the worst times to buy stocks in modern history. Yet readers who followed my advice still did incredibly well.
Like most companies, Hershey's share price did move lower during that time (though it fell significantly less than the broad market). But its underlying business weathered the crisis without a hitch. And it has since produced total returns of nearly 800% (15% annually), or more than three times the total return of the S&P 500 Index over the same period.
The reasons behind these extraordinary returns are as simple as they are certain: Hershey is a remarkably high-quality, capital-efficient business. And I recommended buying it when it was trading at a reasonable price.
The hallmark of our approach to investing is our confidence in great companies to perform well for investors despite challenging macroeconomic conditions.
Most investors would do much better if they paid far less attention to the broad market and the economy and simply focused on following Buffett's guidance above.
That doesn't mean we don't pay attention. The key is that while macro worries generally don't concern us as long-term investors, they can create tremendous opportunities. As Buffett himself has noted, "Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold."
These rare periods of turmoil can offer patient (and prepared) long-term investors the opportunity to buy world-class businesses at unusually low prices while others are panicking.
This combination can produce truly mind-boggling long-term returns. And given the unprecedented risks facing the economy and the markets today, we believe the coming opportunities could be among the best in history.
While most investors understand this strategy, few investors have the fortitude in their hearts to step up and buy when others won't.
That's why we believe it's important to keep your "shopping list" ready.
Ideally, you'll have been following a business for years and you'll know it inside and out – so you'll have the confidence to buy when others won't. And, as you'll discover if you become a lifelong connoisseur of great businesses, the trick to achieving outstanding long-term results lies in only buying when the price is reasonable.
Regards,
Porter Stansberry
Editor's note: By simply learning to identify the right stocks now, you'll transform the way you invest for years to come. You'll find yourself welcoming downturns... because you'll know they present you with opportunities to pick up more shares of the world's greatest businesses. So, if you haven't already, make sure you watch Porter's recent video...
In it, he explains why the economic dangers that brought us here will spread further than you think... and how one strategy can help you protect and grow your wealth, regardless of whether the market falls or turns higher. Get the details here.
Further Reading
"The stage is being set for the largest legal transfer of wealth in history: from the middle class to the rich," Porter writes. Higher costs of living are only part of the problem. And it's this exact kind of inflationary environment that will lead to these Buffett-style opportunities... Read more here.
When fear spikes in the economy, you want to own "antifragile" businesses. These companies don't just endure – they can actively take advantage of challenges that hurt their competitors. And with that edge, they're able to come out of recessions stronger than they were before... Learn more here.
