Forget Warren Buffett and George Soros for a minute… Instead, think about a different investor – a young woman named Alexandra Bergson.
She arrived in the Nebraska plains with her brothers around the turn of the 20th century. Their parents were Swedish immigrants who had set out to become farmers. But early on, things looked bad…
Their corn crop failed. Trying to make up the loss, they planted a bigger crop the next year. But that failed, too.
Nebraska had gone barren. Farmers were going bankrupt. Many gave up on the land and moved back to Illinois or Iowa to find jobs.
During the second year of failed crops, the Bergson family was considering leaving as well. That was when Alexandra made a critical decision…
She traveled from the Nebraska highlands to the farms near the river and spent a week interviewing people there. These farms were doing better. Alexandra returned convinced her family could follow the example of the river land, which had been settled a few years before, and learn how to work the highland.
Alexandra pushed her family to mortgage its property and scoop up all the land it could from frustrated and scared farmers. Her brothers worried that everyone else would think they were crazy. But her plan prevailed…
And it paid off. Over the next 16 years, the Bergsons become among the wealthiest landowners in the area…
Even if it has been a few years since you sat in a high school English class, you might recognize Alexandra Bergson’s story. She’s the heroine of Willa Cather’s 1913 novel O Pioneers!
Her story is in many ways the quintessential American dream… The notion that with some insight, hard work, and the courage to act at the right time, you, too, can build generational wealth. As Alexandra tells her brothers when pushing them to expand their holdings…
The thing to do is to sell our cattle and what little old corn we have and buy the Linstrum place. Then the next thing to do is to take out two loans on our half-sections, and buy Peter Crow’s place; raise every dollar we can, and buy every acre we can… As sure as we are sitting here tonight, we can sit down here 10 years from now independent landowners, not struggling farmers any longer. The chance that father was always looking for has come.
It also shows the virtues of capitalism. By providing a reward to risk-takers, land that would have been abandoned was coaxed into becoming a productive asset.
When we look at the markets today, lots of people are eager to buy discarded assets that can create generational wealth over time.
We’d like to say, “Yes, today is the moment”… But the reality is, we have to be cautious. And we need to follow a different part of Alexandra’s story. Just like Cather’s heroine interviewed the successful farmers along the river to understand her options, we need to carefully study the crisis before us and understand the moment we’re in…
Not All Crises Are Built the Same
Perhaps it’s a good thing that Willa Cather never wrote a sequel to O Pioneers!… because the early 20th century was hard on the farmers who had settled there a generation earlier.
Consider Nebraska about 20 years after O Pioneers! A boom in the price of wheat and promises of riches on the southern Great Plains brought an influx of farmers. This chase for agricultural wealth and new plowing technology led farmers to tear up the natural grassland at a record pace.
With the Great Depression, the price of wheat fell, and farms lay fallow. A lack of rain let the plowed soil dry out. Nebraska, and especially areas a bit farther south, suffered for years through the Dust Bowl.
Reading accounts of the Dust Bowl seems surreal. Great storms of dust would completely black out the sun. Survivors always described how “you couldn’t see your hand in front of your face,” and they meant it literally. People stuffed their nostrils with Vaseline. Children died from “dust pneumonia.”
And the economy went from boom to bust. No crops were grown. Commerce ground to a halt. Teachers worked without pay.
At times, it may have appeared like the ideal opportunity for the Bergsons in Nebraska. More than a quarter of a million people fled. Farms were bankrupt. You could buy them for pennies per acre.
But levering up and buying land would not have paid off. The dust and drought lasted for eight years, and the recovery was little more than an improvement from abject catastrophe to just miserable.
Even today, the dust still buries the things people built… never to be used again. From Timothy Egan’s 2006 history of the Dust Bowl, The Worst Hard Time:
Here is a wood-framed shack buried by sand, with only the roof joists still visible… And is that a schoolhouse, with just the chimney and two walls still standing? Then you see fence posts, the nubs sticking out of sterile brown earth… The fence posts rose six feet or more out of the ground. They are buried now but for the nubs that poke through layers of dust.
Sometimes crisis is an opportunity. Sometimes, it’s just destruction. And if you are wrong or too early, you end up a loser.
Today, the coronavirus has shut down wide swaths of the global economy. It’s still too soon to know exactly what kind of crisis it is – opportunity or pure destruction.
Everybody wants answers today. They want to know when the spread of infections will subside… They want to know when our economy will reopen… And they want to know what to do with their money.
We all find ourselves scrolling endlessly on our phones or perpetually watching cable news, trying to find the little bit of information that will help us answer these questions and see the future.
We know this is futile. So instead, let’s do what we always recommend. Step back from the crisis… away from the news, away from the virus, and out of the current moment. And breathe… count to 10 slowly.
We want to reflect on three of the central philosophies of Retirement Millionaire – ones that are being reinforced and proven true by the events happening today. And we can use those ideas to help us get through our current challenges.
Philosophy No. 1: Don’t Rely on ‘Big’ Anything
No institution cares about you and your family as much as you do. The government, Wall Street, the health care industry… you can’t count on any of them to protect your best interests.
I’ve been living my life with this view for decades. We’ve been saying it for years in this newsletter. And it’s never been easier to see it in our everyday lives.
Any study of history or biology showed that a serious epidemic was inevitable… It was only a question of when it would strike.
The government should have been better prepared for a pandemic. It should have reacted quicker. It could have put the needs of the people ahead of its public relations concerns.
But it didn’t. And now, people are struggling.
The government has enacted a $2 trillion economic aid package. And Congress is already talking about spending trillions more. But how much is coming to you directly? We’d wager not much.
And naturally, the deployment of the aid is already running into problems.
Small-business owners have had trouble getting the loans prescribed by the bill. They must choose between taking a loan that’s only forgivable if they don’t let their workers go… and helping some workers by firing them so they can collect a special higher unemployment benefit.
And of the $2 trillion aid package, $500 billion goes straight to big corporations. At the same time, the Federal Reserve has started buying up investment-grade corporate bonds. We’re not sure how lending support to the largest corporations with the safest balance sheets really helps us…
We don’t want to burrow into the details of policy choices being made or what steps our politicians should or shouldn’t take now that the crisis is at hand…
Here at Retirement Millionaire, we want to focus on you personally. We’re concentrating on helping you take control of your health and wealth, so you can protect the things that matter to you more than anything.
You can count on family and you can count on community. During times of crisis, communities don’t break apart. They pull together.
Now, here’s the good part… You can count on family and you can count on community. During times of crisis, communities don’t break apart. They pull together.
We’ve seen stories of people sewing and donating face masks… people delivering food to neighbors… people paying service workers for jobs-not-rendered in isolation… folks buying gift certificates to provide a cash infusion to restaurants… and plenty more.
And we can’t even begin to recount the bravery of our health care workers.
We’re saying you’re not alone in the world. There is help when you need it. From the feedback we’ve received and the people we’ve met over the years, we’re sure that our subscribers are among the many people out there trying to help their friends and neighbors get through this period.
But you can’t be a helper if you don’t have stability yourself. You need to be prepared.
In recent years, there’s been a rise of “preppers”… folks who stock bunkers with firearms, axes, and canned food for some coming “apocalypse.”
We’ve never thought you needed to be that extreme… And we still don’t. Take a couple minutes to do the simple things, like storing some water and assembling a first-aid kit. You should be able to complete the sentence, “If the power goes out for more than a day, I will…”
In 2014, I published The Doctor’s Protocol Field Manual, my no-nonsense guide to preparing for difficult situations. You can order a physical copy here and here. And yes, we’ve recommended for years that folks keep a box of N95 medical masks in the house (page 38).
We’re in a crisis now, and fortunately it didn’t require much preparation. Yes, you could probably use some masks or hand sanitizer. But electricity is flowing and water is running.
More important in this crisis is financial preparation.
Unemployment has soared. And having a cash reserve is vital for anyone still in the workforce with daily expenses.
Looking further down the road, this is why we focus on investing and building wealth. There’s trouble ahead in the economy, but it looks a lot less stressful to someone with a million-dollar investment account than $1,000 in checking… even if the investment account has lost 20%.
We don’t invest to earn money to spend on cars or clothes. We invest for something else…
Philosophy No. 2: Invest for Freedom and Calm
When people think of Wall Street, they often picture a flurry of floor traders in color-coded vests barking bids at one another. Or they think of riding a hot tip they got from a guy who “knows something” and seeing an immediate windfall.
That’s not how it works. Or rather, that’s not how it should work.
We don’t want excitement in our investment accounts. We don’t want risk and drama and hours of analysis. (We love doing the analysis at Stansberry Research, but you don’t want it to be your full-time job.)
We want to put our money to work for us. And we want a dependable employee who gets the job done with little fuss.
After all, we’ve got enough to worry about in times of crisis. We want our wealth to be a buffer against that, not another thing to worry about.
We want to invest for calm and freedom. There are two things you need to do to make that happen…
First, you need to plan ahead and manage your risk.
We talk about the ways to do that every month: Buy the stocks of high-quality businesses… Diversify with low-cost funds… Allocate to stocks, bonds, and other real assets… Limit your speculations to sizes you can handle.
These ideas aren’t original to us. They can be dull and they can get repetitive.
But every panicked investor today wishes he did those things three months ago. The simple work of building a sturdy portfolio pays off in a crisis… even if it doesn’t excite in a boom.
The second thing you need to do to invest for calm and freedom involves your mentality.
You need to accept that stocks are volatile. Stocks build wealth over time. But they don’t do it in a straight line. If you want the money, you’ve got to be willing to walk the path.
Charlie Munger – Warren Buffett’s longtime business partner – has put it this way…
If you are not willing to react with equanimity to a market price decline of 50% two or three times a century, you are not fit to be a common shareholder and you deserve the mediocre result that you are going to get, compared to the people who do have the temperament who can be more philosophical about these market fluctuations.
Drawdowns in stocks happen. It’s the cost of admission.
Don’t fool yourself into thinking you can avoid them when they hit. Crises like this are unpredictable. And if you sell at every sign of fear, you end up selling little dips, buying back in at a higher price, and missing the good parts of the market.
To quote another legendary investor, Peter Lynch, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”
So this second step toward calm and freedom is a mental one… or one of temperament. You need to accept that your stock portfolio will give you a scare every so often. But history has shown us that stocks eventually come back.
At what point on the following chart was it a bad time to buy or hold stocks?
We don’t know exactly what will happen with the coronavirus, how long we’ll be isolated, or how long our economy will be shut down. There will be bankruptcies, business closures, and economic pain.
We could be entering a recession… maybe even a depression. And stocks may take years to hit new highs.
But this will not end society as we know it. During the financial crisis of 2008, the banking system nearly collapsed. That created much more risk of ending the current economic regime and starting a new one.
This time, the economy will come back… and the stock market will, too.
That leads us to our final philosophy for today…
Philosophy No. 3: Buy Stocks You Know and Love
The sooner you realize Wall Street won’t take care of you like you will take care of yourself, the sooner you can build your finances properly.
The truth is, Wall Street likes to confuse you. It wants to make you think that earning money in the markets is so challenging that only “experts” at hedge funds and big banks can do it.
It wants you to think that if you were to take control of your own finances, you’d be outmatched… you’d be overwhelmed… you’d make mistakes… And you’d end up losing money…
We’re here to tell you that making money in the markets isn’t as complicated as Wall Street makes it out to be. You don’t need to be a quantitative trader or have a PhD. And you certainly don’t need to pay hedge funds huge fees to beat the market.
At its core, investing is simple: Buy great businesses at reasonable prices and hold for a long time.
It doesn’t have to be any more complex than that. You can find great businesses all around you.
Here’s one way to do it… Right now, we are in a time of crisis and what is likely the first month of a recession. Everyone has pulled back on their spending. But what are they still buying?
Well, whatever they’re buying… they’re ordering it from Amazon. We haven’t seen revenue numbers yet, but Amazon has announced plans to hire 100,000 workers to help with the surge in orders. And with people online and streaming at home, we suspect revenue for its cloud-computing AWS platform will surge as well.
Amazon Prime has more than 100 million subscribers, all happily paying about $13 a month. That’s a recurring revenue stream of $1.3 billion per month.
And again, the great thing about Amazon is that you don’t need to be a professional money manager to realize it’s an amazing company. You’ve used its products… And you’ve seen it grow its market share.
Companies like Amazon – ones you use and can understand – are the ones you should be buying during market turmoil like this.
Our advice is to own companies whose business models you could explain to a complete stranger. And we also think you should own companies with lots of cash – businesses that can survive a recession and even gain market share as competitors struggle.
That’s what we’ve done in our Retirement Millionaire portfolio. We own those types of businesses. And we’re prepared to hold them for the long haul.
Dr. David Eifrig has had a varied career, starting on the trading desk at major Wall Street investment banks. After a decade of trading, he chose his “first retirement” and quit Wall Street… going back to school and becoming an eye surgeon.
In short, Dr. Eifrig has learned the inner workings of two of the biggest and most important industries in America – finance and medicine. Today, he spends his “second retirement” advising others on improving their health, managing their money, and enjoying a prosperous retirement.
If you’re interested in learning more about Dr. Eifrig’s work, he publishes a 100% free daily letter on health and wealth that shows readers how to live a millionaire’s lifestyle for far, far less. Click here to learn more.