The Secret to the Secret (of Big Profits)

Keith Fitz-Gerald Aug 19, 2016
17 

I hear frequently from folks who tell me they don’t have the “time” to invest, which is why they’re instinctively dismissive of anything that implies a longer term perspective.

That’s a cop-out.

Look, I get the fact that many people may not have a long time to invest and believe me when I tell you that I understand that you may not see the world the same way you did decades ago if you’re soon to retire or already retired. I don’t either.

But…

I can help make you a millionaire if you understand the secret to the secret (of big profits).

Even if you have as little as ten years.

Here’s what most investors will never understand.

Make 17,202.56% Gains Your Reality

Can you predict the markets?

Most people can’t.

And that means they’d better be “in” if they want to bank the big bucks instead of standing on the sidelines deluding themselves into thinking they’re better off. That way they’ll catch the profits even if they don’t see ’em coming.

Let me explain.

Take the last century, for example.

The Dow Jones Industrial Average returned a staggering 17,202.56% from January 1900 to January 2000, and produced an annualized average return of 5.289% based on price appreciation alone. Throw in reinvested dividends and the numbers jump so high I’m almost hesitant to tell you that they’re 1,903,871.13% and 103.56% respectively for the total DJIA return and Annualized average return, according to the DQYDJ Dow Jones Industrial Average Return Calculator. That’s enough to turn every $1 invested on January 1, 1900 into $19,039 by December 31, 1999.

Here’s the thing, though.

Just a handful of days accounted for the lion’s share of the returns. Meaning if you miss them, you miss the lion’s share of returns.

Don’t have a century?

That doesn’t change the argument one iota.

Long term or short term, it makes no difference.

If you miss the best days consistently, you will never have the kind of wealth you want, let alone deserve.


The other thing to bear in mind here is that you can’t divorce the best days from the worst.

This is so important and so counter-intuitive that I want to say it one more time…

…the only way you can be certain to capture the huge short term profits you crave is to be invested for the long term.

How?

By doing the things we talk about all the time, starting with our Unstoppable Trends, prioritizing “must-have” companies over “nice-to-have” alternatives, and managing risk like a hawk.

And you start by understanding your history, for the simple reason that your history is what will give you the confidence needed to “trust” the numbers – despite the fact that they may instinctively go against every bone in your body.

What I want you to come to terms with is that every single catastrophic financial event, every earnings contraction, every devastating bear market since the dawn of time has been followed by a raging bull market – most of which incidentally actually begin between three and six months before everybody realizes that they’re over.

Ergo… any investor who waits for the “all clear” is almost guaranteed to miss the bulk of the recovery.

Ask anybody who sat out following Black Monday how it felt to watch the S&P 500 go on a 520% run that peaked in January 2000, or an investor who went to the sidelines in October 2002 only to miss the solid 82.3% run higher into 2007. And, not to be a pain in the you-know-what here, but there are plenty of people who ran for the hills again in 2008-2009 during the depths of the Financial Crisis and who have missed out on a generational 145% rally that continues even as I type.

I hope you’re beginning to see my point, and the risks associated with doing nothing when history tells you that you should be doing something… like making your money grow.

Just in case, let me break it down.

History Shows the Biggest and Most Expensive Risk Is Sitting Out

1900-1910: The S&P 500 appreciated 113%, more than doubling investors’ money, despite the turmoil of a President’s assassination (President McKinley, in 1901), an earthquake in San Francisco that left an estimated 225,000-300,000 people homeless, and the Russo-Japanese War that stunned the world by marking Japan’s rise as a world power.

1910-1920: Markets declined 30%. Not quite so good, until you grade on a curve considering WWI and the Spanish flu were taking tens of millions of lives and rattling investors – not to mention testing the very fabric of civilization! Stocks like IBM (founded in 1911), and General Motors (founded in 1908) set the stage for some of the biggest returns ever recorded.

1920-1930: Most investors are surprised to learn that this was actually the best decade yet, even with the stock market crash of 1929 that preceded the Great Depression. The S&P 500 more than tripled, returning 282% and transforming every $10,000 into $38,200. Not surprisingly, those very same returns built upon the “roaring 20’s” when the S&P 500 surged 29% in 1922, 27% in 1924, 26% in 1925, and a jaw dropping 48% in 1928. In retrospect, those astronomical gains were symptomatic of a bubble that would unleash historically unprecedented financial pain around the world when it popped, but that doesn’t change the fact that investors who tripled their money in that decade would still come out ahead.

1930-1940: The Great Depression clearly weighed down returns leading up to WWII, which is why the markets posted their first negative return spanning a decade. Even so, those two very specific global impacts only managed to bring about a slight negative return: $1 invested in the S&P 500 dropped only to $0.90. And, thanks to the deflationary period that went with it, money was more valuable coming out of this decade than it was coming in.

1940-1950: Despite five and a half years of global war and the newly emergent threat of nuclear war set in 1949 when the Soviet Union tested its own nuclear weapons, the markets lost no time making up ground. In fact, they turned in an average annual gain of 5.43% that amounts to 79% gains over the decade.

1950-1960: This was the best ten-year run for the S&P 500 so far, as markets managed to produce a still longed-for average annual return of 19.17% a year for the decade. The S&P 500 appreciated 371% despite losing 11% in 1957. Still, any investor who staked out a position early and kept perspective during the down year is very glad he or she did, with every $1 invested turning into $4.71.

1960-1970: In a time of the Cuban Missile crisis, Vietnam, and racial tension that spills into violence in dozens of U.S. cities, the S&P 500 still manages a return of 62%, with every $1 invested turning into $1.62.

1970-1980: The Iranian Revolution, soaring petroleum prices, and rampant inflation in the late 1970s don’t stop the S&P 500 from returning 133%, turning every $1 of investors’ money into $2.33. However, the soaring inflation of the Carter years chips away at these gains considerably, leaving investors up 2% after inflation.

1980-1990: Another amazing decade for markets, second only to 1950-1960. The S&P 500 returns 182%, almost quintupling investors’ money. Years later, Soviet archives would show how 1983 was actually our closest brush to nuclear war yet, more serious even than the Cuban Missile Crisis.

1990-2000: Capitalism celebrates the fall of the USSR with a 254% rally in the S&P 500 over this 10-year period. Despite a weak start to the decade as the U.S. shakes off recession, the tech boom in the latter half of the 1990s enables the markets to multiply investors’ money yet again.

Investors tell me all the time that things will be different this time. No, scratch that… they insist – and often vehemently at that, citing everything from monetary policy to the price of a green door in China as support for their thinking. Ultimately, they may be right.

Yet somehow…

sky

What does happen, though, is that growth continues.

It may slow but it will never stop, which means that the only way you’ll capture that is…

By investing.

You may have to change up your tactics or adjust your perspective a bit, but that’s another discussion for another column.

Get “in” to win.

I’ll be with you every step of the way.

Until next time,

Keith

17 Responses to The Secret to the Secret (of Big Profits)

  1. Keith says:

    Keith to be fair you should run the results of avoiding the big losing days over the same time periods. It has been shown over and over most folks can not ride out the draw downs.

    • Keith says:

      Hello Keith.

      I’m at a loss because I don’t know what research you’re referencing nor over what time frame. The data I have show that exactly the opposite is true…if they have appropriate risk management in place and proper position sizing. Most people don’t which is why they can’t survive the draw-down…that is.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  2. Robert in Vancouver says:

    Buy and hold ‘must have’ (and future ‘must have’) dividend paying stocks and ETF’s and you’ll do well. I’ve been doing that since 1973. I buy when there’s dips and almost never sell and have averaged a total return of 14% per year including dividends. Don’t be afraid of high dividends like 7% to 12%. Some great stocks and ETF’s get mispriced or are not followed by the talking heads on TV, so they go on sale sometimes which makes their yields high.

    • Keith says:

      Exceptionally well put, Robert!

      Thanks for chiming in and, by the way, I couldn’t agree more.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  3. R. J. says:

    Those who do not remember the past are condemned to repeat it.
    George Santayana

    The Japanese naval fleet’s stunning victory over Russia in the Russo-Japanese War is credited to their use of high-technology. The Japanese fleet used the telegraph, built in Japan, to communicate, fleet-wide.

    It was the first use of the telegraph and radio in naval warfare.

    • Keith says:

      Thanks for taking the time to note that, RJ.

      I recall talking to my late Father-in-law about that very subject years ago and his observation was similar. You guys would have had a good conversation me thinks.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  4. randy a says:

    I wonder what effect a nuclear war will have on stock market returns? Or if ISIS conquers America???

    • Keith says:

      Hello Randy.

      Clearly the short term would be a disaster but then I think we’d have a Templeton-like story to contend with – he famously bought on the eve of WWII and, in the process, created the foundation for one of the greatest wealth creation stories in recorded history despite a worldwide conflagration.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  5. mike widerski says:

    I am very thankful for your advice I see and hear of all these get rich guick schemes . It is good to know someone actually wants to help me . Thank you

    • Keith says:

      Thank you for your kind words, Mike.

      I started Total Wealth to do just that – help – and I’m thrilled that comes through!

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  6. Antoine Alary says:

    I agree, the markets’ best days happen shortly after their worst ones, and that is also very often the case with individual stocks too.
    Today’s example CXW was down about %35 yesterday, and is up over 8% today,
    So it seems to me that trailing stops cause you to get out just at the wrong time.
    Yes, if a stock relatively slowly goes down 15%, 20% or 25% from its peak, you should probably get out, but you have plenty of time to do that manually.
    But if your trailing stop “panic sells” because the stock falls that much in one day, you would probably have been much better off waiting a day or two for the rebound and sell at a slightly better price.

    • Keith says:

      Hello Antoine and thanks for some very important observations.

      Respectfully, I’ll push back a bit though. Just having a trailing stop isn’t enough. You’ve got to have a trailing stop that reflects current market volatility and/or liquidity yet still reflects your personal risk tolerance. For, example, 25% may be fine for a steady eddie holding but you may prefer to run a 10% stop because you don’t want to risk more than that on any given investment. Another investor may prefer 5%…and so on.

      Just DO have a trailing stop of some sort in place…studies show they work to protect profits and your capital.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  7. George Padanilam says:

    You are confirming the dictum: “timing the market is wrong, time in the market is that matters.”

  8. Damon McDaniel says:

    Hi Keith – my question is over the very modest timing. Using your advice about selecting the stocks, ETF’s etc desired but using buy orders at specified entry points – I’m now showing a cash position larger than desired but really is “spoken for” by my pending / open orders. I’d like to put that cash to use – but would not over commit. What do you do to stay “in” as your article above indicates?
    Regards,
    Damon

    • Keith says:

      Hi Damon.

      Excellent question and the answer depends on your personal risk tolerance.

      For example, there is nothing wrong with waiting until very specific lowball prices get hit. That’s how you control what you buy, when you buy and with exactly how much. But, if you’re getting restless, try dollar-cost-averaging in over a period of months and using the Lowballs as a complimentary mechanism when the stocks you want get put on sale.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  9. Mark says:

    Absolutely great and timely information for all of us.

    • Keith says:

      Thanks very much for the kind words, Mark!

      If there’s anything in particular that you’d like me to write about or that I can be doing better, please don’t hesitate to let me know.

      Best regards and thanks for being a part of the Total Wealth Family, Keith 🙂

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