Editor's note: This weekend, we're taking a break from our usual fare. We’ve adapted a DailyWealth essay that we last published in December 2020. In it, Steve addresses one of the most common questions he gets from his readers... and explains why his unique mindset paved the way for his investing success.
"How do you invest your own money, Steve?"
People ask me this question all the time...
Some of these folks are looking for a very technical answer, like what percentages I invest in stocks and bonds and how I come up with those numbers.
Others are just looking for a hot tip. (The best hot tip is this: There is no such thing as a hot tip.)
Today, I will share with you what I do with my own money... But to be clear, what I do is not necessarily the best thing for you to do with your money.
You see, I break "the rules"...
But if you know the rules – and if you are strong enough to cut your losses when necessary – you can consider doing what I do.
I can sum up what I do with my own money very simply: I wait for the "fat pitch"...
I am often "underinvested." I don't typically own a lot of stocks just because "I'm supposed to." Instead, I wait for an extraordinary situation – a fat pitch.
The idea of the fat pitch comes from the most successful investor of all time... Warren Buffett. He said:
I call investing the greatest business in the world because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There's no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.
Fat pitches don't happen often. Sometimes you have to wait years for them to surface.
For example, I thought my fat-pitch opportunity in U.S. real estate would never appear...
I'd been an investor for decades, but I'd never bought U.S. real estate as an investment. It was never cheap enough for my standards... It was never a fat pitch.
I thought I'd gotten it wrong. Plenty of people around me had gotten rich through real estate. But I had an aversion to borrowing money... And I didn't see the dramatic upside potential in the real estate market.
Then it happened... We had the worst real estate bust in generations. And mortgage rates hit their lowest levels in generations.
I got my fat pitch... And I swung, starting in 2011.
Before the "great bust" in the U.S. real estate market, I had never bought any property in the U.S. (except for my home). I never saw my fat pitch. Now, Florida real estate is the biggest part of my investment portfolio, by far.
Fat pitches like the great real estate bust don't come along every day. In fact, I have been very patient waiting for them...
I've swung the bat just three times in the last 11 years.
Fat Pitch No. 1: In late 2008, I saw a fat pitch coming in stocks. I bought all I could – and I even took out a home-equity loan to buy even more. That's the only time I've ever done that. I was a bit early getting in – the real bottom was March 2009. But it worked out fantastically... I paid off the home-equity loan a little more than a year later with my profits.
Fat Pitch No. 2: In 2011, I started buying Florida real estate. I may have gone overboard... but the fat pitch was too good to ignore. In one deal, I bought a couple hundred acres for 90% less than they were worth under contract just two years before. And I also signed a contract to sell a condo for twice what I paid for it – after buying it less than three and a half years before.
Fat Pitch No. 3: In 2015, I started building a portfolio of microcap gold-mining stocks. This sector had lost more than 90% of its value in the previous four years. It was the cheapest it had been in a generation, at least.
Like U.S. real estate years ago, I had never invested a significant chunk of my money in gold stocks – until then.
By buying small gold stocks in late 2015, I was a full three months early... Fortunately, I didn't lose much. I cut my losers when they hit new lows, and I added to my winners.
Then gold stocks took off... and I was up dramatically.
Waiting on a fat pitch works for me... But it's a challenging rule to live by.
I think about life in a unique way. In my eyes, life is ordinary 98% of the time... The other 2% of the time, it's full of extraordinary moments.
If you are capable of recognizing those "2% moments" and acting on them to the fullest extent possible, then you can potentially generate extraordinary returns.
I am constantly on the lookout for those extraordinary moments in life and in investing, and I try to make the most of them.
Whether this way of thinking is right or not doesn't actually matter... I believe it – and it works for me.
Again, I am not suggesting that you follow my "fat pitch" way of investing. But if you want to know what I do with my own money, and how I think about it... now you know.
Editor's note: On January 27, Retirement Millionaire editor Dr. David "Doc" Eifrig will join Steve to share their road map to success in 2022. They'll also reveal why this year could be a critical "turning point" for your investments – so we urge you not to miss this online event. And as a bonus for attending, you'll hear Doc's and Steve's No. 1 stock picks for the year ahead... Click here to save your spot.