Building Wealth The more "boring" the better...
My team and I typically look for boring companies when we're scouring the market for investment ideas.
As long as these businesses consistently grow revenues, reward shareholders, and have a competitive advantage... we're interested.
Companies that do boring jobs – like picking up trash, selling HVAC units, or killing pests – stay off the radar for most investors. And that's great for us to buy in at a fair price.
If a business does something that no one else wants to do... then sign us up.
In a recent issue of the Stansberry Digest, my senior analyst Matt Weinschenk wrote about the difference between a company that is in the news constantly and a similar business – one that's considered boring but unknown. The company that steals all the headlines is WeWork, which runs co-working spaces.
WeWork signs long-term leases on large office buildings, renovates them, puts a bunch of desks in small offices, and rents them to freelancers or small startups on a short-term basis.
The only problem is it's never been profitable. And it's hard to imagine it ever will be. The company's management team has also made some questionable decisions recently. I sure wouldn't hand my money over to invest in the stock.
Yet, all anyone can talk about is WeWork... And that's a mistake. As Matt explained:
Some investors want the shiny new thing.
They are obsessed with growth – without regard for costs or sustainability. They are content to take management's accounting numbers at face value. They chase lottery tickets over steady returns. And they are willing to overlook even the most basic measures of corporate governance to chase those big gains.
That's not how smart investors do well in stocks...
Instead of focusing on companies that are popular and have no path to profitability, focus on boring companies that consistently churn out profits for its shareholders. You'll get less "oohs" and "ahhs" when you talk about it at cocktail parties, but when you tally up your investment results at the end of the year, you'll be quite happy.
We know a much better way – a more boring and shareholder friendly way – to invest in the "asset light" office space. It's one we first recommended to Retirement Millionaire subscribers more than three years ago, when we first looked at the co-working real estate space.
It's a company called CBRE Group (CBRE), which manages commercial, residential, and industrial real estate.
The key is that CBRE doesn't own real estate... it manages it. This is an important difference. Owning real estate takes tons of capital and, often, tons of debt. Investors are exposed to much more risk.
CBRE has a clear business plan, unlike WeWork.
CBRE helps coordinate leases, facilitate sales, and arrange financing for clients. It also consults on valuations and project management. You can turn over your whole building to CBRE to manage. The company will fill it with tenants, collect rent, and maintain the building.
Now, these tenants aren't the trendy "co-working" type. These are big businesses who sign big-boy leases.
But there's nothing proprietary or technologically advanced about WeWork's business model. Anyone can copy it.
In fact, CBRE launched a flexible space division that will turn an owner's property into a co-working space and manage it for them.
CBRE is profitable, earns healthy returns on capital, and trades for just 0.8 times sales today. Compare that to WeWork's projected 15.6 times sales. (If you're a Retirement Millionaire subscriber, you can read all about CBRE's profitability right here.)
We're up more than 135% on our CBRE recommendation.
Investments like CBRE are how you grow your wealth over time... not silly fads like WeWork.
When it comes to portfolio construction, I would recommend the majority of your stock portfolio be made up of these boring companies. Again, these are businesses that grow revenues, increase their dividends, and have a competitive advantage.
But remember, I don't think you should have all of your money invested in stocks. Cash and stocks should make up the majority of your portfolio, but you should also have smaller allocations to fixed income and "chaos hedges" like gold and silver.
Of course, each investor is different. There is no one-size-fits-all guideline. Some folks want to make speculations. They want to swing for the fences to compliment the rest of their portfolio.
I think that's absolutely fine. In fact, I encourage it – if you take proper position sizing.
And you have to make the right speculations. Betting on crazes like WeWork is not a speculation... I think of it more as throwing your money in a dumpster and setting it on fire.
One of the biggest speculations of the past several years is cryptocurrency.
There's no denying cryptos are a hot speculation right now. Some people have made a lot of money... and some have lost a lot of money.
That's why, if you want to speculate on cryptos, you need someone who knows the industry to help guide you away from losing your shirt on bad investments.
That's where Eric Wade comes in... Eric is a cryptocurrency expert and he believes a major event on September 12 could cause one tiny crypto to soar five, 10, or even 50 times over the long run. He just put together a special presentation with all the details.
What We're Reading...
- More proof of 'America's New Market Madness.'
- Benefits and risks of trading forex with bitcoin.
- Something different: Altria downgraded as analyst questions Philip Morris merger and further scrutiny of JUUL's vaping ads.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
September 11, 2019