4/26/2013
Yes I just said that. And you can quote me! If you want to get rich, do not buy Tesla, Facebook or even Gold. Instead buy stocks with no earnings if you want to make 50% a year.
Why would I say something so crazy, so diametrically opposed to broadly accepted theory?
Well, I like to keep things simple, and there is very simple logic behind my statement.
Here it is: The world richest man, Warren Buffett, followed that rule and did so for over 12-years when he ran his hedge fund, becoming one of the richest men in the world.
Don’t take my word for it. Read Buffett’s own words.
This excerpt from an old Businessweek article I’ve had filed away since living in my dorm room says it clearly. Here it is … Warren said, “If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance, is selling.
The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million even $10 million. No, I know I could. I guarantee that.”
That is probably my favorite quote in the history of investing. Warren Buffett is saying that if you have less than $10 million to invest, then you should be earning 50% a year in the stock market.
How can Warren Buffett guarantee that he could make 50% a year, if he was investing less than $10 million dollars?
I’m going to tell you.
You may not know this, but Buffett ran a hedge fund in the 1950’s and 1960’s that was hugely successful. He beat the S&P 500 every single year for 12 straight years, and never had a losing year. He averaged around 50% a year in his hedge fund. But It was the size of the assets he was managing that ultimately suppressed his returns (which at 20% annualized are still among the best in history).
So how did Buffett hang a 50% number consistently when he was small. First, when he started investing, he used the classic deep value investing approach he was taught by Ben Graham. I am not going to go into Graham and his deep value investing strategy, there are 100’s of books on it and articles on the internet about it.
But what I will tell you is the way Buffett invested when he ran a small hedge fund, is a lot different than the way he invests today. Buffett, back in his early days, purchased deep value stocks that had asymmetrical risk-reward return scenarios. Let me say that again. He only bought stocks that had asymmetrical risk-reward.
What this means is that he purchased stocks that were so undervalued that they could easily go up 100%, 200% even 1000%. Yet the risk the downside to the stock was minimal or almost nothing.
How is that? The companies he invested in had tons of cash, zero debt, traded below book value, and a lot of times traded below their net cash level (meaning the company had more cash than its entire market cap).
This is the precisely same investing strategy I use in my advisory service, The Billionaire’s Portfolio, and for my own account. In our portfolio, right now, we own at least five stocks that are trading below book value, and have more cash on their balance sheet than the company’s entire market cap. Many of these stocks trade for as little as $2, but once sold for as high as $20.
I know the downside very clearly in these stocks. If they spend much time trading below their liquidation value or book value, or trade much below the cash they have on their balance sheet, a company or investor will step-in, acquire the company, sell all of the assets and pocket the proceeds.
In comparison, Google, Apple and Amazon have huge downside potential – big risk. We have seen how quickly Apple can shed 30% (in 7 months). Google and Amazon in 2007 and 2008 lost 40%. But here’s the big difference. Google, Apple and Amazon have very limited upside. Instead of getting 2x, 3x, even 10x of what you risk (like Buffet says) these blue chip tech stocks could pay you 25% or lose you 50%. I don’t know about you but that’s a bad trade to me.
Consider this: In The Billionaire’s Portfolio, we have a stock that sells $2.06, yet has $2.10 in cash per share and zero debt. The stock is selling for less than its net cash. Remember, net cash means cash minus all debt. So this stock is like buying a CD. It’s all cash. While this stock has NO earnings, it’s been selling assets, which unlocks value in the company. Let me be clear: I don’t care about the company. I just want the stock to go up. And selling assets can make the stock go up. In fact, in this case, with the game-plan that one of my favorite billionaire investors is executing with this company, I expect him to strong-arm this stock right back up to $10, where it was trading just a little over a year ago.
Remember not only do we follow Warren Buffett’s original hedge fund strategy, but we also follow many other Billionaire Hedge Fund Managers with track records just as good or better (50% annualized plus returns) who practice the same assymetrical risk reward type investing strategy.
So think about that risk reward, we own a stock in The Billionaires Portfolio, that has little or no downside but the upside is gives us a chance to make multiples of our money. That’s an investment that can make you rich. But I don’t just do it once. I do it over and over again.
Now, would you rather own a stock like that or Google, Amazon or Apple which you might make 30% on in a year best case, but you could lose 40% if you’re wrong, or the market sells off.
Let me tell you a story about a stock that my boss at the hedge fund I worked at purchased back in 2002. This stock which had no earnings but had $7 in cash and zero debt and sold for around $8, was a little company named Apple. As we all know Apple went on during the next 10 years to be the hottest stock of its generation. My boss by the way who purchased 1 million shares of Apple around $8, well he sold a little early, he sold back in 2007 when Apple hit $200, so he only made a profit of $192 million or 2400% (24 times his money).
So don’t take my word for it, believe my boss who made $100 plus million dollars buying a stock with no earnings, or better yet believe one of the world’s greatest investor, Warren Buffett, who told you that you should be making 50% a year if you have less than $10 million dollars — and the way to do this is to buy deeply undervalued stocks with no earnings.
Now, if you are not making at least 50% a year, and you have less than a $10 million dollar account, Warren Buffett and me, are telling you to fire your Stock Broker, Mutual Fund or any other person who is charging you money and not making you 50% a year.
By the way The Billionaires Portfolio is on pace to put up nearly 50% annualized this year. You need to own only stocks that can go up 2x, 3x … even 10x or more. Because I know you need this service, and because I know when people join this service, they don’t leave, I’m happy to give it to you today with zero risk. If for some reason it doesn’t suit you, email me within the first month and we will refund your money in full. I’ll make this offer today only, for newbies. Right now. So go ahead and get on-board.
You can sign up here… and if you are not satisfied with the service in the first 30 days just email us, call us and we will instantly give you a 100% money back, guaranteed, no questions asked.
Will Meade
Editor of The Billionaires Portfolio