Our Investment Strategy: the Investment U System
Dr. Steve Sjuggerud (PhD. International Finance) and Julia Guth (MBA) developed an investment strategy dubbed the Investment U System to generate tremendous returns through all market conditions. And you can learn this simple system FREE in one day or less for returns that could exceed 900%.
It’s important to remember that Investment U isn’t just a collection of recommendations, or random thoughts. It’s a true system, and it underlies every broadcast you read on this website, and every publication we produce on becoming a better investor.
It is based on four simple criteria, which are applied to each investment, and which you’ll quickly learn to apply to any investment strategy you’re considering:
- Going Against the Crowd: Sometimes, it’s as plain as determining what the Wall Street herd is doing… so you can do the opposite. The reason is simple: To maintain your edge over other investors, you must beat them to the punch, time and again. Investing with the herd makes that impossible, by definition. And it can get you slaughtered, fast.
- Crunching the Numbers: Collecting and analyzing the data for each investment. Then collecting and analyzing more data. There’s no shortcut and no substitute for hard work and due diligence in your investment strategy- and as he often says, Dr. Sjuggerud has crunched more numbers than any investor he knows.
- Bringing in a Historical Perspective: Critiquing that analysis from a historical perspective (i.e., Have we seen this set of investing conditions before? If so, what can we learn from that to help maximize our returns this time?).
- Managing Risk: Using various tools – such Trailing Stops and Position Sizing – to lower our risk, even as we strive to maximize our profits. The goal is finding the ultimate balance: the point at which we are consistently minimizing risk while maximizing returns – and the Investment U System makes sure you stay on that fine line.
Let’s start with the first item on the list here, and see exactly how the Investment U System works to help you make more money, including some concrete examples.
Investment Strategy-The Investment U System at Work:
1. Would You Rather Join the Investing Crowd – Or Beat It to the Punch?
If you REALLY want to make money investing – we’re talking hundreds-of-percent returns – you’ve got to be bold. You’ve got to buy something of value that, for one reason or other, nobody else wants. Then you’ve got to hold and eventually sell when everybody wants it.
“Buy straw hats in the winter,” the old Wall Street saying goes. And it is how you make BIG money with VERY LITTLE RISK…
If you want to make extremely large returns, you’ve got to find value where others see dead money, and then be willing to buy what nobody wants… Shares of Lucent or Cisco simply aren’t going to make you hundreds of percent.
Early in 2003, Investment U readers were introduced to one such “straw hat” opportunity: timber, which had seen values fall every year since 2000. We then recommended Plum Creek Timber (NYSE: PCL)… And it went on to provide a nice double-digit gain for us in about seven months (beating the S&P by about 1,000% in the process, over the same period).
2. Using Statistics – Hard Data – to Maximize Investing Returns
Dr. Sjuggerud is an expert when it comes to finding meaning in the numbers. While it’s easy to break down what a P/E ratio is, for example, it’s not very easy to determine how best to use P/E ratios when it comes to choosing stocks.
Here’s a more specific example of how Investment U can help you make better decisions in your investment strategy based on crunching the numbers:
During the worst bear market of the 1930s, legendary value investor Benjamin Graham averaged returns of 17% a year. (Graham was Warren Buffett’s mentor, having taught him in college at Columbia.) And during the last great bear market (the dozen years before the bottom in 1982), the average annual return on stocks meeting Graham’s criteria was 33.7% a year, according to one study.
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“…The average annual return on stocks meeting Graham’s criteria was 33.7% a year,” |
The concept behind Graham’s Number, when it comes down to it, is basically buying cash at a discount (actually cash and things that can be easily turned into cash – in other words, Net Current Assets). Graham’s idea is that if you can pay as little as two-thirds of “cash” for a stock, you’ve really got nothing to lose.
Here’s how you get to Graham’s Number for any company: It’s simply Current Assets minus Total Debts.
Another way to think of it is basically what cash is left if you were to pay off all debts. And, if you find a company that’s going for two-thirds – or 66% of – the value of its cash, that’s a value.
As you might expect, it’s difficult to find stocks this cheap. But finding them can pay off tremendously – even in bear markets, as Graham’s own success shows. (For more on this subject, see the IU E-Letter #246 – Benjamin Graham: Intrinsic Value and Buying Cash at a Discount.)
3. What History Tells Us About Various Investment Strategies
As with most other areas of human life, investing tends to run in cycles, with various market patterns repeating over and over… Learning from the mistakes of the past can mean the difference between tremendous gains – or catastrophic losses from repeating those mistakes.
The Investment U System takes the lessons of history and makes them an integral part of investing analysis… In some cases, we’ll look several years into the past for clues that can help us maximize our returns today… Sometimes, we’ll even look several decades into the past, or even centuries, in order to understand a modern-day investing opportunity.
For example, we recently took a look at what’s affected the price of oil since World War II through the Gulf War, to draw some conclusions about oil as an investment strategy today:
The story seems to repeat itself over and over… Boom and bust. Opportunity found, and opportunity literally stolen away. Oversupply and shortage. Optimism and despair.
Having followed the history of oil from the 1860s through the OPEC heyday of the 1970s through the current war in Iraq, Dr. Sjuggerud concluded that oil – while nearing historic highs – still had some room to run up in price.
As he wrote: “A fall in the price of oil may be coming. But with the price of oil near multi-year highs, we’re not there yet…”
At the time, crude oil was trading at around $40 a barrel – high by recent standards – but went on to soar higher still, breaking through the $50-per-barrel mark on Oct. 1, 2004.
Investors who stayed in the energy markets, needless to say, saw the price trend predicted by Dr. Sjuggerud come to fruition, and then some.
Just one more way Investment U readers held on a little longer than skittish investors, to tap even more profits from the ongoing bull market in global commodities.
4. Managing Risk to Protect Profits and Minimize Losses
Investment U’s System first helps you generate profits by finding the best companies, sectors and strategies to invest in now… then it ensures that you protect those profits.
The two main methods behind its investment strategy are:
1. Trailing Stop: The biggest killer to a portfolio is a “catastrophic loss.” If a stock falls 90%, it has to rise by 900% to get you back to where you were. You never want to be in this position. The best rule of thumb we’ve found is to use a 25% trailing stop. That way, you’ll never have a catastrophic loss…
A good example: Netflix… Last year, my colleague Alexander Green of The Oxford Club recommended NFLX to our readers on Jan. 29, 2003 for $12.34 a share… Investors were disappointed when we stopped out on Nov. 17, 2003 at $44.70… They wanted to keep riding Netflix higher, but our trailing stop discipline required that we exit the position – with a 256% return.
Investors who held onto their positions are now sitting on a 10% LOSS. It sure would have been a crime to lose money on something that you were once up almost 300% on… but that’s what a lot of investors who weren’t following the IU System did.
2. Position Sizing: The best traders never risk more than 1% of their portfolio on any given investment strategy. Let’s say you have $100,000 to invest and you’re using the 1% risk model to guide your investments. If you’re using a 25% stop loss, you could buy $4,000 worth of stock and risk $1,000 ($1,000 is 1% of $100,000). In this example above, you placed 4% of your portfolio into the stock and set a 25% stop – risking just $1,000 of your money (since $1,000 is 25% of $4,000).
Again, when you’re investing using the IU System, you know there’s always a “why” to go along with the actual investment recommendations. You’ll never be in the dark as an investor again.
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