For the past ten days, ever since the gala opening of my ultimate portfolio, our inboxes have been packed with your comments and questions.
So in an intensive Q&A session at the Weiss TV studios, Associate Editor Mike Burnick was kind enough to ask those questions on your behalf, while I did my best to provide immediate, but thoughtful, answers.
Mike Burnick: Martin, let’s start with questions related to all the big numbers you’ve given us. This week, I think you’ve surprised a lot of people when you talked about a total return of 613%* and when you talked about the idea of beating Warren Buffett’s Berkshire Hathaway by over four to one since 2005. So one question we’re getting a lot is: How consistent was that growth?
Martin Weiss: Quite consistent. In its worst year — in the depths of the most severe recession since the Great Depression — my model portfolio was down only 6.2%, compared to Berkshire Hathaway, which was down 51.2% in that same year, or over eight times more.
And on the flip side, our average total return for the entire period, including the recession — was UP 58.7 percent per year! Theirs was less than one-fourth of that.
Mike: Here’s a question that’s typical of what some readers are asking this week.
“The stock market has been down this week.
How has that affected your portfolio so far?”
Martin: Hardly at all.
Mike: Why not?
Martin: Because we’re 83% in cash, and the small positions we do have are at the very top of our A+ companies, the safest among the 12,000 or so we review daily.
Mike: Will you be jumping in full force soon?
Martin: I don’t make those kinds of decisions ahead of time. Every day, I get a series of reports from our computer models and my team:
One report tells me if we’ve identified the beginning of a bear market. And so far, the answer is that, although we may have a correction, it’s too soon to call a shift in the big-picture trend.
Mike: Once it does, if anyone knows how to protect capital and even make money in a decline, it’s got to be the Weiss organization.
Martin: Yes. The second report gives me a unique list — not only stocks that merit a Weiss Stock Rating of A+ but also those that rank at the very pinnacle of our Weiss Performance Index, that are making the most money for investors in terms of price appreciation and dividends. And a third report does essentially the same for ETFs.
So with these last two reports, I select investments that hold up well in minor declines. And with the first report, I can protect the portfolio from major declines.
Mike: Let’s talk about retirement. A lot of our questions are from readers planning for retirement or already in retirement. So this kind of growth is very intriguing to them, because the other solutions that they’re seeing are unacceptable. One woman asks:
“Which solution do you prefer, Dr. Weiss:
Ridiculously low yield … or ridiculously high risk?”
Martin: Neither, of course. With the first so-called “solution,” you’re supposed to plop your money into bank CDs or something equivalent. But what good does that do you? Even if you have a nest egg of say, $500,000, and even if you could find a bank that gives you 2% interest, all you get each year is $10,000. How the heck do you pay the mortgage and buy food with $10,000?!
Mike: All you’d need is one or two MRIs that Medicare won’t cover and poof! All your income is gone!
Martin: Right. And the second solution is even worse. You go for a high-risk strategy of some kind or you get caught in a bear market, and suddenly, your principal is gutted in half, which …
Mike: …which sets you back even further.
Martin: So NOW, with half your principal gone, now you go for the low yield option? If you do that, how long is it going to take you to recoup, just to get back to square one? Do the math!
Mike: You’re down $250,000. And you’re making how much? 2% per year?
Martin: Right. And you want to recoup your $250,000 loss.
Mike: OK.$250,000 at 2%. That gives you $5,000 in interest per year. And you want to make back your $250,000. 250 divided by five. It’s going to take you fifty years!? Wow! That’s mindboggling.
Martin: It is. And this is the great dilemma of our times. So the only true solution is something that gets you away from these absurd Faustian choices, something that takes you to an entirely different place. That’s what our goal is here. Faster growth without bigger risk, in fact, with less risk overall.
Mike: Well said. The next question comes from a reader who apparently knows you as a publisher, but not yet as an investment analyst. He’s asking about your background. Why don’t you share with our viewers how you founded the company in 1971.
|Irving Weiss, father of the founder and a stock analyst since 1929, at his Wall Street office, circa 1966.|
Martin: Yes, 1971 was the year I founded my company, Weiss Research. That was 43 years ago.
But about six years before that, I began working with my father in his investment research company, and then we worked in my company.
Mike: From what I’ve heard, that must have been quite an experience.
Martin: It was. Dad wasn’t just a good father. He was also a good friend, teacher, mentor, and partner. Working closely with him wasn’t just a great education for me. It was also a great education for all our researchers and analysts at Weiss Research.
Mike: I’ve read your book. And it seems he was probably the only person in history who saved investors from the bear market of the crash of 1929 and then saved them again from bank failures in the 1930s.
Martin: Yes, but what most people seem to forget is that in the Depression, he was also one of the first to get his clients back into the market.
He got them into blue chip stocks right near the bottom of the long bear market.
He helped investors pick up gold stocks that doubled and doubled again.
He advised Joe Kennedy, the father of JFK, to buy silver when it was selling for something like 20 cents an ounce.
He told clients to buy America’s best electric utilities, when they hit their rock bottom a few years later, just before World War II. No one wanted utilities back then. So they were selling for pennies.
All that was before I was born. I didn’t come along until right after the war. But as soon as I was old enough to understand, he began telling me bedtime stories about his exploits on Wall Street and he actually made them very exciting. And as soon as I could do the arithmetic, he began to show me how to analyze companies. That was his great skill.
Mike: Martin, you’ve just opened enrollment for our new service, Martin’s Ultimate Portfolio, and one gentleman who saw your last video is asking:
“Martin, you’ve introduced us to other services.
But in this one, you seem to be more involved.
Why is that?”
Martin: Because my ultimate portfolio is the fulfillment of a lifelong ambition, a lifelong dream. To me it’s the ultimate reward, like a pot of gold at the end of a long journey.
You see, for many years, my father and I manually analyzed just a handful of companies every quarter. My dream was to develop systems that could help us accurately review thousands of companies every day and then create a portfolio around it.
So for the last 30 years or so, I’ve been leading various teams — each team with one analyst and one computer programmer, one team for banks, one team for insurance companies, one team for stocks, and so on.
Mike: To generate ratings on them.
Martin: Exactly. To build smart, very smart, computer models that issue accurate ratings. We started with the banks in the early 1980s, then insurance companies in the late 1980s, and then stock ratings in 2003.
That was 11 years ago. So now, we’ve been validating the accuracy of the stock ratings, in real time, for over a decade.
And now, based on that experience, and with 10 years of data to get it as close to 100% as we’re ever going to, I can say, with a high degree of confidence, that the place and time is here and now. It’s finally the right moment to open up my ultimate portfolio.
That’s also why I’m personally in charge of its implementation and why I’m investing in it myself — with my own money.
But I couldn’t do it without our team of stock analysts and programmers. So thank you, Mike, for being an important member of that team.
Mike: Thank you, Martin. But while we’re on the subject of the Weiss Stock Ratings, I have a question of my own.
The Wall Street Journal once reported that the Weiss Stock Ratings beat everyone — that your ratings were number one in the nation in terms of performance.
I have the report right here. You beat the research departments of Merrill Lynch, JP Morgan, Goldman Sachs, and every major Wall Street brokerage firm or bank in the study. Why is that?
Martin: The main reason is that the Wall Street firms were conflicted. In effect, they got payola by making money off the companies they rate, and sometimes still do.
Mike: But in this Wall Street Journal report, the performance of your stock ratings also beat all the independent firms who did not have conflicts of interest. Why is that?
Martin: Because safety is such an important part of what we do. The other research firms that issue ratings, whether they’re conflicted or independent, typically focus mostly on profits. We look very, VERY carefully at both profits and safety.
Mike: Here’s a question we got about ratings: “I know all about your Weiss ratings and I use them all the time. But with your ultimate portfolio, it seems you’re taking a step further?”
Martin: Yes, a giant step further! My ultimate portfolio goes far beyond our published letter grades because it ranks the stocks by an index we do not publish. I’m talking about our performance index, which is a model based on how much money investors are making in the stock right now.
That way, we can buy strictly the current top, top ten performers among the 700 or so that we consider safe and liquid. We’re so selective — so, so picky — we will consider buying only one-tenth of one percent of all the investments we cover. And then, when the top ten list changes, we adjust the portfolio accordingly.
Mike: Good. I have a lot more questions here from readers. So let me just quote them. Let me be their voice, so to speak.
“You talk lot about wars and the terrorism, and you say it’s going to get worse. So why invest in stocks to begin with? Shouldn’t you be just buying things like gold?”
Martin: I do that too — whenever a mining stock appears in the top ten of our list. Ditto for precious metals ETFs. As to buying other stocks, please keep this in mind: The turmoil is overseas. So it’s driving a flood of smart investors with a lot of money into the U.S. markets. And what are they seeking to buying?
Mike: Quality. They’re running away from risk. So they want quality.
Martin: Yes! They’re looking to buy the best, most liquid investments they can lay their hands on — the same kind of investments we buy. But we have a big advantage over them because we have such powerful, accurate selection tools.
“I’ve got an IRA. Can I trade along
with your ultimate portfolio?”
Martin: Yes, every investment we buy is suitable for IRAs. Besides, this is not a high-risk strategy that goes for flashy one-up trades. It is designed to build wealth rapidly, but to do so steadily, over time. And you can do this especially well in a tax-protected account like an IRA.
“Your father is legendary for having made a killing in the bear market of the 1930s. But making a killing in the NEXT stock market crash, whenever that may be, doesn’t seem to be your primary goal. Why not?”
Martin: Because you don’t have to. In bear markets, all you need to do is preserve your capital, and that alone puts you well ahead of everyone else in the market. Then, when the market recovers, you can truly jump far ahead of the averages. The numbers I’ve given you for my model portfolio prove both of these points.
“What is a prudent strategy for a bear market?”
Martin: Before you go there, you need a model that helps you do what Dad did — to accurately identify the beginning of the bear market as early as possible and the end of the bear market as well — so you can pick up the bargains and get on-board for the recovery.
That’s what we do with our model based largely on the same indicators we discussed here earlier.
Those bookends — marking the beginning and end of the bear market — aren’t going to be exact. But still, knowing them makes a huge difference.
Then, the bear market strategy is basic: You allocate a lot more to cash. You use solid hedges. And you’re going to preserve your capital or even make money.
“I want to do this on my own, without
following your portfolio. Is that possible?”
Martin: Up to a point, yes. Use strictly our buy-rated stocks. Then, from that list, select strictly the ones that are the most liquid. For example, stocks with average trading volume of at least 250,000 shares per day and total market capitalization of $500 million or more.
But the next step could be difficult to replicate on your own, because that’s where we rank the stocks using our unpublished performance index.
Mike: Why isn’t it published?
Martin: Good question. Fundamentally, it boils down to the two goals I set forth when I first founded the company: I want to do everything I can to help save the public from losses. That’s what our published ratings do.
But I also want to do everything I can to help our closest friends and subscribers build their nest egg as efficiently as possible. And for that second goal, our performance ranking model is far more powerful if it’s not published, if it’s not being used by a larger number of investors in the market.
“You also buy ETFs. Why is that?”
Martin: For maximum diversification across asset classes and countries.
“I can’t afford to stay glued to my email
all day every day waiting for the next trade.”
Martin: Good — because I can’t either. Just be sure to check your inbox each Friday after the market closes to see if I’m recommending a change to your portfolio.
“What’s the minimum amount of money
I need to invest in order to fully
follow your ultimate portfolio?”
Martin: $25,000. That’s more than enough to diversify among all the investments we recommend … and still maintain a cash reserve for safety … or for taking advantage of new recommendations.
“I can’t tolerate any kind of risk
at this point. None whatsoever.”
Martin: Then, in your case, I think it’s best you stick with Treasury bills. You won’t make anything. But other than inflation, you won’t lose anything either. In my ultimate portfolio a major goal IS to reduce risk.
I avoid 11,000 stocks that don’t qualify as safe enough. I implement solid capital preservation tactics in bear markets. I use very broad diversification. But I can’t reduce the risk down to zero.
Mike: That’s impossible.
Martin: On the other hand, if what you’re looking for is a relatively cautious strategy to grow your wealth pretty rapidly, then I think this is that solution on a higher plane that a lot of people are looking for — that can help you escape that dilemma of either ridiculously low yield or ridiculously high risk.
Mike: How long will you be in any position?
Martin: It all depends on how long the stock or the ETF stays at the top of our list. The key is we never try to tell the market what to do next. The stocks themselves tell us whether or not they’re worthy of our money!
Mike: This has been very helpful, Martin — both for readers who want to follow your portfolio and those who don’t. Thank you!
Martin: Thank you for the questions — not to mention your own insights!
* For fair comparison, the performance of all investments is calculated on an equivalent basis. It represents each investment’s total compound returns (price appreciation plus dividends) before taxes and broker commissions. The Ultimate Portfolio uses the same measure, depicting what a hypothetical investor could have achieved if he had followed our new model during the same period. For details, see Terms and Conditions. Data Sources: Bloomberg, Weiss Ratings.