In the movie It’s a Wonderful Life
there’s a scene where the town’s bank is collapsing and Mr. Potter offers to save the day by paying people 50 cents on the dollar for their savings deposits. That’s how I want to invest!
If only I could go back in time and buy stocks in 2009 (or San Francisco housing), or gold in 2000. Countries, industries and individual companies collapse, yet generally recover and often boom.
Deep value investing feels natural to me and is primarily how I’ve invested in the past - it fits my investing personality.
Deep value stocks can still have large drawdowns. They’ve underperformed the last several years during a booming market, but over time they’ve been a solid and often countercyclical bet.
I plan to devote most of my equity investing to deep value approaches. The four key strategies (roughly equal weighting) are:
- Global Value ETF (GVAL) holds the deepest value stocks in the most undervalued countries - sort of like Dogs of the Dow but on a global basis, with lots more mid and small caps.
- ETF Rotation - buy the biggest crashing ETF’s for countries and industries. Right now lots of natural resources. A related article: “Why You Should Ask For Coal in Your Stocking This Holiday” http://mebfaber.com/2015/11/11/why-you- ... iy-season/
- Alpha Architect ETFs (QVAL,QMOM,IVAL,IMOM) - these 4 ETFs work together, providing global coverage and mixing 50% value with 50% momentum. Momentum investing feels a lot less intuitive to me, but the long-term data seems to back it up as a powerful factor - and it makes a good balance to my value heavy portfolio
- Acquirer’s Multiple with momentum twist. Buy stocks with very low acquirer's multiple (enterprise value/operating income multiples), but buy the ones with highest momentum
For fun, I also have one 10K investment in a single stock that I plan to hold forever, and about 8K in my Roth IRA. The Roth IRA will eventually grow as I do my Roth pipeline. For now I’m using the 8K as seed money to start buying Benjamin Graham net-nets. These are stocks whose market value is less than their current assets minus total liabilities.
Frankly, I should probably just put all my money in Vanguard Total World Index (VT). But I think I can do better . . . famous last words. Worst case, I don’t think I will trail the market by much over time, as I’ll be systematically investing in a diversified set of companies bought at lower prices. Taxes should be minimal if not zero - the more active strategies occur in tax sheltered accounts.
As noted in my prior post, I also have some other non-equity items. They are pretty straightforward and I don’t foresee any changes.
- 12K Precious Metals - I have one year of my basic "survival" lifestyle ($1,000/month) hidden away in an undisclosed location. This feels right to me - potentially buys me a year or more of time in the event of global chaos, and/or can be sold to cover emergency cash flow needs.
- Long-Term “Bond” (46K current value / 100K value in 15 years) - see prior post for details - nothing I can do with it except wait 15 years. It will cover several years of living, even taking inflation into account.
- 15K+ Cash - I’ll always plan to have at least 6 to 12 months of liquid cash.
- 2K Cryptocurrency - James Altucher had a great quote a few years ago - “cryptocurrency has a 1% chance of succeeding, thus I put 1% of my net worth in it” - had I followed his advice at the time the cryptocurrency would be worth 30 to 50% of my net worth, but I didn’t. I have $2K - mostly bitcoin - surely a sucker’s bet at this point, but will be fun to watch. Don’t plan to buy more.
The 18+ months of cash/metal described above, plus the “bond” down the road and my willingness to reduce spending as needed, should allow just enough of a hedge to survive a stock market crash.
Potential worst case scenarios? A sustained 50% drawdown could be survived, and an 80% drawdown could be managed for two years before permanent destruction of capital begins. Anything bigger or more sustained than that and all bets are off anyway.