It's a natural instinct, but one that could spell disaster for your finances...
Humans are hardwired to follow the herd. We're more comfortable thinking and acting the same way as the majority. It's a survival instinct that's kept us alive for thousands of years. Safety in numbers meant you didn't get mauled by a saber-toothed tiger. But when it comes to investing, the herd can lead you straight to disaster. Following the herd leads you to buy at the top and sell at the bottom... terrible advice.
That's why we're smart investors. We stay away from what we refer to as the "dumb money." We're not following the herd. We actively work against it. We're contrarians.
And following the contrarian way is something my friend Joel Litman is also good at...
I first met Joel more than 10 years ago. We were both at a meeting for the New York Society of Security Analysts – a group founded by the famous teacher and mentor of Warren Buffett, Benjamin Graham. Joel stood up in front of this well-respected group and made a shocking prediction...
He claimed the collateralized debt market would collapse – and soon.
A sense of disbelief filled the room. Everyone wondered who this young guy was making such an unbelievable call.
After all, it's easy now to recognize that slicing and dicing risky subprime mortgages and then adding leverage doesn't make them safer. But at the time of our meeting, collateralized debt obligations ("CDOs") were massive fee-generators for Wall Street. Sales rose nearly 10-fold between 2003 to 2006.
CDOs were "safe as houses," if you believed Wall Street.
And in early 2008 when the financial crisis began... Wall Street learned what Joel already knew.
Turns out that home prices don't always go up. Mortgage defaults started to rise. And practically every major investor on Wall Street – including hedge funds, investment banks, and pension funds – was exposed.
Within a year, the problems in the collateralized debt market were spreading... and by late-2008, it was clear that no one was safe.
That's one reason why Joel's work is now read by nine of the top 10 global investment houses... and 180 of the world's top 300 money managers. Folks I know have paid $20,000 to $30,000 a month for his research... far above what we ever charged at Goldman Sachs.
You see, until recently, Joel's research has been reserved for only the highest echelons of investment management...
But today, Joel is sharing his latest discovery... A rare investment in an often-ignored group of stocks that appears after every crisis – with 10-bagger potential if you get in immediately.
In fact, Joel and his team have identified seven stocks that they believe have 1,000% upside from here...
Now let's get into this week's Q&A... And please keep sending your questions, comments, and topic suggestions to us at [email protected].
Q: I noticed the other day that my tea claims it hydrates just as well as plain water, but it has caffeine and I remember you saying once, Doc, that caffeine dehydrates you. False advertising maybe? – A.T.
A: So this is a good example of hydrating properly. Yes, caffeine does dehydrate you, as does alcohol. That's why we usually recommend drinking a glass of water after a glass of wine.
But hydrating is actually better with foods or beverages that contain nutrients. As Dr. Param Dedhia explained in a previous issue, the chemical transporters in our intestines are really good at pulling in nutrients from what we eat. And water flows where the nutrients go. You might remember this from your days in chemistry class – it's osmosis. That's why the best way to take in water is to take in nutrients with it. Plants are a great way to get nutrients and water, as are soups and broths. (You can read his full issue here.)
Tea doesn't have many nutrients, but don't give up on it. It's still packed with inflammation-fighting antioxidants and is a great way to relax. Green tea in particular has plenty of health benefits like fighting cancer cells. Personally, I love Bigelow brand teas.
Q: I have a question about using stops. When you recommend to place a hard stop on a stock of 25%, do you mean to set the stop price at 25% below the purchase price? Or are you recommending to use a trailing stop of 25%? – D.B.
A: Hard stops use a set price or percentage below the purchase price. If the stock falls to that amount at any time, you sell.
Let's say you purchase Stock X at $10 and set a 20% hard stop at $8. No matter what the stock price rose to for Stock X, once it fell to $8, you would sell.
Trailing stops use a percentage below the purchase price, but they don't stay the same. As the price rises, the trailing stop follows it.
For a trailing stop, let's say you would initially set it at 20% below your purchase price. So for Stock X, you'd start out at $8, the same as a hard stop. But if Stock X rose to say, $12, your trailing stop would rise to $9.60.
Q: Doc did a good job in the July 9 CARES Act explanation. But I believe there is also a tax deduction of $300, $600 for couples filing jointly for charitable donations. Please verify and let us know what you learn. Thanks. – R.R.
A: Folks who don't itemize on their 2020 tax return can claim a special "above-the-line" deduction. It's $300 for individuals and $600 for married couples. If you don't take the standard deduction and you do itemize, this deduction isn't available to you. But for those folks who do itemize, they can claim a deduction on cash charitable contributions up to 100% of their adjusted gross income (up from 60%).
What We're Reading...
- Did you miss it? The secret to making life-altering gains.
- Something different: If something sounds too good to be true, it probably is. Inside Twitter's recent bitcoin scam hack.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
July 17, 2020