Lately, I’m being asked one question again and again.
“Leon,” friends and readers alike are wondering, “how is it you can be so content and positive when we are in the midst of a global economic crisis?”
People think I should be panicking… or, at least, complaining about losses the stock market crash caused.
But I have no reason to do either of those things.
First, the losses I suffered were minimal, nowhere near what the stock market overall went through.
Second, not only have I recouped the losses, but I’ve made a good deal of money as the market has turned around.
Now, if I’m honest (and as you may remember from my March letters), I actually was panicking quite a lot. However, unlike most investors, I was panicking because I was afraid I might miss out on opportunities to buy.
The reason I am in such good spirits is not because this is a terrible time to be an investor… but because this is an excellent time.
And, as it’s my mission to help you become a better investor, I would like you to help you adopt the same perspective.
Which is why, today, I want to pass on to you one of my fundamental investing principles and show you how it has helped me to prosper during this crisis.
Where Most Investors Get It Wrong
I don’t like to lose money.
The joy you feel when you make $10,000 is nothing like the pain when you lose $1,000.
I know this might defy logic, but, if you’ve been in this game for some time, then you know what I’m talking about.
That is why one of my fundamental investing principles is making sure that, come what may, I never lose.
This might seem incredible or impossible. How can you make sure you never lose?
Let me explain what I mean.
When you invest money, you set yourself up for one of three possible outcomes—negative returns, okay returns, and superior returns.
When most investors make decisions, they are looking to get “superior” returns.
In my view, that’s misguided.
“Superior” returns typically require taking on additional risk. And there are times when that leads to catastrophe.
As it did in February 2020.
Historically speaking, stocks were expensive at the time.
Therefore, those looking for “superior” returns had to invest in riskier companies that had aggressive business models and, as a result, poor balance sheets.
Of course, under the right conditions and if the economy prospered, they stood to make a lot of money.
However, that’s not what happened.
The stock market crashed.
And, so, those who were looking for “superior” returns instead ended up with “negative” returns.
How I Profited From The Coronavirus Crash
The lesson here is that…
Looking for “superior” investing returns is a bad idea.
Instead, your focus should be precisely the opposite—to avoid “negative” returns.
Following this strategy, you’ll end up with “okay” or, sometimes even, “superior” returns.
That is what I mean when I say that one of my fundamental investing principles is making sure that no matter the outcome, I never lose.
And I do that by investing conservatively. That is, picking only companies with healthy balance sheets, robust market shares, and excellent long-term growth projections.
Moreover, I always hold assets in my portfolio that can protect me from market volatility, such as gold, for example.
Naturally, that often leads to my returns being just “okay,” while, at the same time, other investors may be getting “superior” results.
But that’s something I can live with.
Because, when times are rough, as they are right now, I know I have access to money should I need it. If I took a riskier approach, that wouldn’t be the case.
And by avoiding the “negative” outcome, I actually get “superior” returns, whenever the market declines.