Originally posted October 14, 2016.
In recent quarters my goal has been to work especially hard at providing investors with intelligence that will keep them safe and dividend-centric during what I consider the inevitable coming meltdown. Meltdown? Absolutely baked into the cake as I write to you, and becoming more of a deep midterm concern for me as time passes. The Fed’s robbing Peter (you and Dick Young) to benefit Paul (international bankers and Wall Street charlatans) program has created the most distorted and manipulated investment environment in my over five decades in the business.
What does a meltdown look like? Think back. What were you up to at the turn of the century? Feels like a long time ago, doesn’t it? Are you aware that during this period, the speculative NASDAQ (larded with non-dividend payers) endured four annual declines of greater than 20%? And over 30% was knocked off the NASDAQ in three of these “take you out of the game” debacles. Moreover, the horrific 2008 collapse peeled 41% off the NASDAQ.
Remember, when you lose half your money in any period of time, you must double your money just to get back even.
A Brand New Portfolio Concept
In Intelligence Report, I have introduced a brand new portfolio concept to keep investors safe and dividend-centric during the next stock market collapse. I have tweaked my original work on dividends and interest, along with my long-time interest in gold (I have held my original 1982 China Gold Pandas for decades), to produce what I call the “Dynamic Maximizers.”
What are the Dynamic Maximizers?
The DMs are a fine-tuned derivative of Young Research’s original Maximizers portfolio. On the stock side of the portfolio, I focus on high-barrier-to-entry businesses with lasting competitive advantages as well as firms with long records of paying and increasing dividends. On the bond side, I use a mix of Treasuries and investment-grade bonds whose weights vary depending on the opportunities and risks in the bond market.
The portfolio concept is simple and conservative, but as we all know too well, knowing how is simple, but actually having the discipline, intestinal fortitude, and patience to bring off a Maximizers compounding strategy is quite another matter.
Who should invest in the Dynamic Maximizers?
The DMs are ideal for retirement investors, IRAs, and education programs, to be used instead of fixed-income portfolios in periods of historically low and manipulated interest rates. Maximizers investors, should however, recognize going in that long dry spells of underperformance can be expected and are just part of the game with such a conservative approach.
What kind of performance should investors expect from the Dynamic Maximizers?
Past performance is no guarantee of future success, but I am proud to say that Young Research’s Dynamic Maximizers portfolio hasn’t suffered a single down year this century. Compare that, by example, to the NASDAQ Composite.
The display below tracks the performance of Young Research’s DMs versus the NASDAQ from year-end 1999. My conservative Dynamic Maximizers strategy beats the reach-for-return crowd by a country mile.
Win the War, Not Every Battle
What is most shocking about this long-record of outperformance, is that the NASDAQ actually beat Young Research’s Dynamic Maximizers in 10 of the 16 years profiled. A 6-and-10 MLB starting pitcher record would get a player banished to the bullpen. My Maximizers strategy wins the war by a long shot and it does so with no down year. Furthermore, in 13 of the 16 full years this century, returns for my Dynamic Maximizers have fallen within a 3% to 10% range. For the outgunned NASDAQ, the deviation from best to worst year is a breathtaking 91 percentage points. And the bone-chilling NASDAQ record includes five down years, four of which were bruisers. No half-sensible retirement investor is going to sign on for that back-snapping volatility.
Remember my cardinal rule of portfolio crafting: “Always analyze risk before worrying about potential returns.”
I put risk ahead of return in my own portfolio and in the portfolios of members of my private client investment counsel firm. You can read more about the investment programs my firm offers and sign-up for our insightful client letter (free, even for non-clients) here.