And we don't encourage that kind of behavior, but ultimately it leads to failure. The other thing I've always found is: A lot of people who say that they're a buy-and-hold investor – they really are a buy-and-fold investor. Meaning that they're very confident in their approach until they're down 50%, in which case they panic and sell. Richard Smith: You know, I do want to speak just for a minute, though, to that idea, that impulse that people are in the markets as gamblers http://casino-games.my/live-casino/. You know, there's an element of that, right?
But I think there's a legitimate way in which investing can be fun. But you can still put the odds in your favor. Going to Vegas and just throwing money at the craps table when you don't know how to play the game is stupid. But there is a way to be a smart investor and still enjoy the thrill of the market without having to have it be totally boring. What do you think?
Porter Stansberry: Sure. But you'll do better if you're totally boring [laughs]. If you build at least half your portfolio into really high-quality, capital-efficient P&C insurance companies that are good underwriters, stuff like – Blackstone commercial mortgage is a fantastic security.
It's yielding 7% or 8% and it's designed in a way where it really can't fail. It's a really bulletproof thing. Same thing with Annaly, which owns mortgages and has an 11% yield.
What I'm saying is: You build your portfolio around a solid financial foundation like that and then you stack on top of that just great businesses, things like Hershey, things like NVR, the home builder that is just an incredible business. Super high-quality companies – you buy them when they're trading at a reasonable price, and you're going to do great. And the stuff that tempts you, the stories about undersea gold mines and stuff like that – it's fine to play along with that, but you have to understand that that's not really investing.
That's speculating. And you really can't afford to speculate with more than about 5% of your portfolio. So if you want to have those names in your portfolio, that's fine. But you have to control your position sizing. And TradeStops will absolutely do that for you. So, Richard, let's move on to how people can get involved with their portfolio that exists today and your software.
How does that work? If I've got an account at say Ameritrade or something like that, how do I link up with TradeStops and start managing my portfolio better? Richard Smith: So, you can subscribe to TradeStops.
You can download your portfolio directly from over two dozen online brokers now. All the big ones: TD Ameritrade, Fidelity, Scottrade, Schwab, etcetera. And you literally synchronize your portfolio into TradeStops. So it's a read-only service.
We download your data from your brokers. We don't actually execute any trades for you. But once you're in TradeStops, you can track your portfolio there.
You can see the volatility quotients on all your stocks. You can do the position sizing and get alerts and monitor your whole portfolio right in TradeStops. Porter Stansberry: I use it. It's great.
Richard Smith: And you can also see the newsletters that you're subscribed to. Porter Stansberry: Yeah. That's the coolest part. [Crosstalk] Richard Smith: Like if you subscribe to True Wealth.
Porter Stansberry: Yeah. You can look at your newsletter portfolios directly in TradeStops. So you can just go through there, figure out which ones you want to put into your model portfolio, rebalance them, and then you know exactly how many shares to buy at your broker. It's really easy to use and it's all point-and-click. There's not any – it's not hard.
And they're wondering about that dichotomy. Richard Smith: Yeah. Porter Stansberry: And, listen, where is it now? Thirty cents? Yeah, it's probably not done well for people. You have to understand: I can appreciate a great story and I can also appreciate a great investment.
And what I have learned over the years is: most great investments have a very boring story. And most great stories have a very bad investment outcome. And as a publisher, people are wanting to read great stories. And we find them for them. And they don't always end up as a disaster.
For example, there was a natural gas company in Papua New Guinea that said they had the largest – somebody's typing on their mic. Richard Smith: Yeah, sorry. That's me. I was trying to get into TradeStops to find the volatility on Nautilus Minerals. Porter Stansberry: Well, we had InterOil, which was the story was: Someone found the world's largest natural gas deposit in a jungle in Papua New Guinea.
And it sounded very much like the Nautilus story. Except for in this case, we sent the geologist out to Papua New Guinea, he saw the test well, and he was blown away. It looked like a dang jet engine pouring out of a mountain. I mean, it was an incredible natural gas well.
And that ended up being sold to ExxonMobil for billions and billions of dollars. So sometimes the stories work out great. And sometimes of course they end up like Nautilus. My point is that if you use the newsletter's position sizing and you use a trailing stop, you can invest in these great ideas, some of which will work out and some of which won't. And your returns over time will be fine. But what I know happens is that people fall in love with these stories and they do dumb things like put half their portfolio in Nautilus Minerals and tell themselves they're going to give it to their grandkids.
And I'm sorry, but that's not our fault. Because that is not at all what we suggested you should do. Richard Smith: And that's where TradeStops comes in to help. Because you look in and you see the volatility quotient on Nautilus Minerals at 75% and it's an eye-opener, right? You go, "Oh, okay.
This isn't a stock I put half my portfolio into. I'm willing to risk $1,000 on Nautilus Minerals." Porter Stansberry: Yup. That sounds about right. Richard Smith: "That means if I'm wrong, I lose $1,000."
So it can either be an all-or-nothing bet, or you can go in, and let's say it has a 50% VQ – you say, "I can invest $2,000, and if that $2,000 investment falls 50%, I'm down $1,000, I take my lumps, I move on to the next idea." That's a smart way to be in highly-speculative opportunities like that, because you only need to make about one out of 10 of them work, right? [Laughs]. Porter Stansberry: Yeah. And some of them do work out great.
Seabridge Gold went up, I don't know, 700%, 800%, 900%. Richard Smith: Incredible story. Porter Stansberry: Yeah. And so we do hit some of these home runs. Regeneron – Dave Lashmet – one of his best picks ever went from $12 to over $600.
I mean, you don't have to have many of those, and you actually don't have to have much money in them, to do really well. Let's say you got a $100,000 portfolio, you might put up to $2,000 in a stock like that, and if you make 12 times your money, great. You just made a 25% return on your total portfolio from 1 small pick. That's a great result. But of course you know what happens, Richard. A lot of people think they're investors, but what they really are is gamblers.
But I do want to point this out. The other category I've seen in my own investing that doesn't work very well with stops is actually the property and casualty insurance firms. And the reason is: Because when there's a catastrophic loss like a hurricane, the market dramatically overreacts to the potential losses that the insurers face. So after the hurricanes last summer, a lot of very good insurance companies got knocked down immediately 25% or 30%, which triggered all of our stops. Meanwhile, six months later they've come out and they've said, "Yeah, it's going to be a 10% loss for us. It's not the end of the world."
And so I think there're certain things like that that trip up stops. But, overall, in a regular operating company, they're great to use. Richard Smith: You know, in both those cases, Porter, what I hear is a very clear rationale for why you're going to not use a stop, right?
Where you get into trouble is when you start making excuses for why you're not going to [laughing] use a stop. And one of my favorites that I ever heard was from a reader who had bought the stock that was going to mine gold on the ocean floor. Porter Stansberry: Oh yes.
What was that one called? Richard Smith: Nautilus Minerals. Porter Stansberry: Nautilus Minerals. By the way, I have to tell you. That was one of my favorite all-time newsletter articles we've ever published.
It was such a fantastic story. Buck, there was a Russian billionaire who was putting up a bunch of money and the idea was they were going to mine gold off the bottom of the ocean off of Papua New Guinea. What could possibly go wrong?
Richard Smith: [Laughs]. What could possibly go wrong? So this subscriber – forgive me if he's on the call listening. But he's an explosives engineer at Lawrence Berkeley Livermore labs. He designs the explosives that make the oil rigs in the Gulf of Mexico sever from the ocean floor when there's a catastrophe.
So they have to work once, only once, and always once. Right? So: Smart guy, right?
But he was in Nautilus Minerals, and he said, "Yeah, I'm not using a stop on that one. I'm going to give it to my grandkids." Porter Stansberry: Oh boy.
Richard Smith: That was the ultimate justification of why you're not selling, why you're not following a discipline. Hope springs eternal, right? "I'm never going to benefit from this but I'm sure my grandkids will. And so I'm going to give it to my grandkids and I'm still going to feel okay about the fact that I didn't have a discipline on this one – I didn't have an excuse for not selling." Porter Stansberry: And where's Nautilus today? Does anybody know?
Richard Smith: You know, I don't even know. Porter Stansberry: Country Club Guy? Richard Smith: I'd be surprised if it even exists [laughs]. Richard Smith: My point is: You have to be honest to be a good investor, right? You have to be honest with yourself. And if you have a great reason for not using a stop loss, fantastic.
If you don't, then I've put together a great system based on decades of research at this point. And it's a great way for investors to be in the market with some safety nets. Porter Stansberry: Yeah. And, listen, I want to explain something. I'm sure there're some listeners who heard me say "This is the best newsletter story we ever published" and then I said the outcome for investors was a disaster.
Robert is a blogger, novelist and passionate reader. He is a online casino addict, vegan, hiphop head, reclaimed wood collector. Producing at the nexus of art and programing to save the world from bad design. He sometimes makes random things with friends and thinking over table side bets – are they worth it?