The Fifth Investment Truth in Our 'Market Maven' Tool Kit

Do you know how to read markets as well as master investors Steve Cohen, George Soros, or Steve Sjuggerud?

If the answer is yes, today's essay does not apply to you. Consider yourself exceptionally fortunate.

But for the rest of us mere mortals, I invite you to keep reading...

Over the course of my 20-year investment career, I've had the pleasure and rare honor to work with all three of these otherworldly market mavens. And in that time, I've discovered some near-universal investing truths.

These truths include the following...

  1. A stock can always go lower, so honor your stops and other sell disciplines.
  1. Establish clear investment goals and then stick to your plan for how to achieve them.
  1. The only truly guaranteed way to grow your wealth long-term is to spend less money than you make each year.
  1. Invest in what you know and understand, because you'll make better decisions when the unexpected happens.

I've discussed each of these guidelines in the past (some of them here in DailyWealth). But today, I'd like to add another near-universal rule to our tool kit. And you might be surprised when you hear it...

Rule No. 5: Do not try to time the market.

Don't do it... at least not in an all-or-nothing manner.

This means don't sell all your assets and go to cash in an attempt to avoid the next downturn before it happens. Most of us shouldn't even sell half our assets.

You may be asking, why not? What if I'm certain it's the right time to get up from the table and walk away? Three reasons...

First, there's a good chance you're wrong. You see, predicting bear markets is a really hard thing to do.

Bear markets seem so obvious after the fact. But before they occur, it's tough to know when the music will stop and stocks will start trending down. That's because the market will provide a lot of "false negative" signals far in advance – like slowing global growth, an inverted yield curve, widening credit spreads, and high valuations for stocks, among others.

If you sold your assets at the first sign of such false negatives, you would have pulled out of stocks many times over the past 10 years... only to see the market rip higher.

Second, even if you defy the odds and correctly time when to sell, your work isn't nearly done. You'll also need to know when to buy back in.

Sitting in cash means missing out on one of the greatest wealth-compounding investment vehicles on the planet. Since 1900, U.S. equities have returned about 6.5% per year – after inflation – according to the Credit Suisse Investment Returns Yearbook, an authoritative source for long-term returns. That's compared with an average loss of more than 3% per year in the purchasing power of cash. (That performance would be even worse if we see a spike in inflation.)

What's more, knowing when to buy can often be harder than knowing when to sell because markets tend to recover before economic data points actually improve. In fact, the data may still be getting worse when a market turns back up – just less worse.

Thus, I see market-timers miss out on big recoveries far too often because the data that got them out of the market still looks bad... while stocks rip higher.

The third reason not to be a sell-it-all market timer is that – with two exceptions – there's simply a better way to invest. It's what Dr. David "Doc" Eifrig calls the "tilt." As he told me once...

You don't have to bet all your money on stocks, predict a top, and then pull it all out. Rather, you should just tilt your portfolio a little more or less aggressively, depending on how comfortable you feel with the market.

Of course, as always in investing, nothing is set in stone...

A market-timing strategy in which you sell all (or most) of your assets is appropriate if you simply need the money immediately... or if you are at a point in your life where your desire to preserve existing wealth vastly exceeds your desire for future capital appreciation.

True market mavens like Mr. Cohen, Mr. Soros, or Dr. Sjuggerud are more adept at timing the markets than the rest of us. But even they would tell you to only do so by leaning heavily into your portfolio tilt. No one is perfect, but these guys will give you a considerably better chance to succeed with such a strategy.

We built our Stansberry Portfolio Solutions service to take some of the guesswork out of this for investors... with a choice of four individual portfolios to help you make the most of what the market gives you.

It combines the expertise of Steve, Porter Stansberry, and Doc. We use The Capital Portfolio to capture the powerful upside of the Melt Up... The Defensive Portfolio to protect your hard-earned nest egg in market downturns... The Income Portfolio to earn you steady yields from equity and fixed-income investments... and The Total Portfolio to compound your gains in any kind of market.

Returns for all four portfolios continue to be solid this year. All four are achieving their goals thus far...

The Capital Portfolio continues to exceed the returns of the S&P 500 Index in an up market. The Defensive Portfolio was actually up in the major market sell-offs experienced in May and August (and has generated solid returns in other months as well).

Meanwhile, The Income Portfolio is generating strong absolute returns and income. And The Total Portfolio is also exceeding the returns of the S&P 500, despite taking considerably less risk.

So you can easily see, it isn't as simple as "in or out."

These portfolios are the culmination of a lot of time and work. We take the responsibility of crafting them very seriously. And we strive to do so in a manner that's optimal over the long term.

You want to invest for the long haul. To do that, remember our fifth rule, and don't time... tilt.

Good investing,

Austin Root

Editor's note: At Stansberry Research, our mission is to give you the investment advice we'd want if our roles were reversed. We've been doing exactly that for 20 years now... And to celebrate, the biggest names in our company – Steve, Porter, Doc, and others – are announcing two new ways to enjoy our research. That includes a special Portfolio Solutions offer that we think might even beat our original Alliance membership deal... Watch our video to hear this important message.

Further Reading

"If investing were easy, everybody would be rich," Doc writes. "It's tough to gain an edge on the market when it's made up of some of the smartest financial minds in the world." You can make investing easier by avoiding three common psychological traps... Get the details right here.

"You must allocate part of your capital base to measures that will help protect the whole in the event of a sharp market downturn," Austin says. For a true "all weather" portfolio, investors should consider their risk exposure. Learn more here.

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Many people often fail to avoid one of the biggest mistakes in investing. But the truth is, it's easy to avoid. And there's one simple way you can make sure you don't fall victim to it...

Market Notes


Today's chart tells us the economy is still thriving...

As regular readers know, we use "real world" gauges as economic bellwethers. Industrial companies are one of our favorite tools. When manufacturers are making money, it means there's demand for what they're producing. And when they're just one part in an intricate supply chain, it means other manufacturers are also doing well. That's what we see with today's company...

Brady (BRC) is a $3 billion industrial supplier. It specializes in labels and label printers, signs, and tags for customers to use in their factories and warehouses. That means Brady does well when other factories have lots of inventory to label... and suffers when industry is slowing down. There's plenty of demand today – the company recently announced a $131 million profit in the last fiscal year, up 44% from the year before.

BRC shares are up more than 130% over the past five years, and they recently hit new all-time highs. That's a good sign for America's industry... and the economy in general...