I don’t know about you, but I like to buy and own stuff. Real tangible things that I can touch and see as I make my way through the world.
Think about your average week. You probably go to the bank, either in person or online, a time or two. You gas up the car, stop at the grocery store, drive on the freeway, work in a commercial building or office of some sort and maybe go to the doctors or dentist office. You use electricity, perhaps some natural gas to heat your home, water, gasoline and most likely relax by watching cable or satellite TV. All of this fits my definition of stuff.
Once stuff is in place it generates gobs of cash for years and often even decades. Toll roads, office building, power plants, cable systems, retail and medical real estate and even the things needed to finance, build, and maintain stuff are examples of my favorite type of investments.
Let me say that again: Stuff.
This puts me at odds with most of Wall Street, since they love to push you to buy big ideas – big, abstract ideas that may or may not work out so well in the long run.
Don’t Buy Ideas Until They Actually Turn Into Stuff
Do me a favor today. Look through the headlines, or even just your email inbox. The big push is for you to own ‘big ideas” that could be the next big thing.
The problem is that even when ideas work big, you have to have picked the right company out of all the hundreds of companies trying to exploit the next big idea. The odds are most decidedly not ever in your favor.
Here is the thing about big ideas. The developers of the big ideas use offices and pay rent. They use utilities. The big thinkers fill their cars with gas and drive on the same roads, highways, and bridges that you do. They need electricity to keep the lights on and the equipment required to develop and build that big idea. The next Nikola Tesla needs water to live, to bathe, and flush the toilet. They need stuff.
Even better, ideas that work eventually turn into stuff.
Let me give you a couple of examples…
- Back in the 1990s, online travel booking was an idea. Literally, hundreds of companies battled to dominate the online travel space. By the late 2000s it was clear that online travel was here to stay and Priceline, now Bookings Holding (BKNG) was the winner. In the bear market of 2008 the company had the high quality, low price combination that I like based on my “Heatseekers” methodology and is up over 3000% since.
- The idea of things like online gaming, virtual reality, artificial intelligence, and cryptocurrencies were all once just ideas. Some of them still are. You know what is not an idea? The chips made by NVIDIA(NVDA) that make the ideas possible in the first place. Billions of dollars were bet and lost trying to figure out which chip company would win. NVIDIA won and back in early 2013 the stock was a bargain based on my research metric. The stock is up 1700% since then.
By the way, the baseball-based “Heatseekers” metric I use to find great stocks at bargain prices is undefeated so far. I explain it all here.
I wait for ideas to turn into stuff before I even consider buying shares. You will miss a few along the way using my metrics, but we don’t need to get them all. You just need to get some, and you will make life-changing money.
Even Better – Just Skip The Wait and Buy “Stuff” Right Now
By waiting for an idea to become stuff and then waiting to buy the stuff at the right price, you eliminate all the early adopter risk of backing the wrong horse. You avoid being penalized by the simple fact that you can pay too high a price for anything. Even investors who bought great companies like Microsoft (MSFT) during the internet bubble took more than a decade to recover their original investment. Those who bought companies that continue to dominate their industry are STILL not even.
But I don’t have to wait for great ideas to turn into stuff to make money. Banks and Real Estate have been the most successful sectors for me during my more than three-decades-long investing career. They are not sexy or exciting unless you find a couple of things exciting:
- Owning assets that consistently go up in value
- Very small (minuscule) risk of taking a permanent loss.
Once you figure out the rules on buying them and abide by them regardless of what’s on the news or popular at the moment, those two things are exactly what you will have. Personally, I find that kind of sexy.
Utility stocks are probably the most boring stock of all. When I was a wee lad in the investing game, we used to call them widows and orphans’ stocks. They were boring, dependable companies that paid generous dividends. I would have to reassemble a few decades of records to make this a definitive statement, but I am pretty sure I have never lost money on a utility stock.
I have a straightforward formula for when to buy and when to sell, and if you follow the rules you could not only win most of the time, but you could handily outperform the index. The conditions required for purchase do not happen very often, but when they do these boring companies become exciting investments if you know the right math to use.
In general, the key to making piles of money in the stock market is not buying ideas. The next big idea space is usually pretty crowded and it’s generally not easy to pick the eventual winners. To be sure, if you get one right you will make a ton of money. However, the odds are stacked against you… especially today. The “big idea” companies are waiting for a clear winner to emerge before going public so mere mortals like us will never get a chance to invest until the price is already too high.
However, we can buy stuff that makes everyday life work, and if we identify the best stuff and pay the right price, we will make tons of money with no need to make a lucky guess. Ideas are risky. Stuff is not. We can make our own pile of money by being right most of the time and not just swinging from our heels.
Good stuff at the right price allows us to do precisely that.
To the Max,