Editor’s note: A few days ago, we sat down with E.B. Tucker, editor of The Casey Report, to talk shop. The conversation was so good, we just had to share it with you.
In the following interview, E.B. talks about how he manages his own money. As you’ll see, he has a unique, yet intuitive approach to investing, especially when it comes to asset allocation.
We hope you find this conversation as useful as we did. Also, make sure you read until the end to learn about one of E.B.’s top speculations.
Justin Spittler: I want to talk investment strategy. Could you tell us how you manage your own money?
E.B. Tucker: I like to break up my investments into buckets. I have about five of them. I have one for gold, one for permanent life insurance, one for real estate, and two for stocks.
I don’t limit myself to a certain number of buckets. But I’ve had very good results looking at asset allocation this way.
J.S.: Can you tell us a little more about your “buckets”? Why do you break them up this way? What kind of assets go into each?
E.B.: First of all, the buckets change with life and market conditions.
For example, I put most of my capital into a real estate bucket in 2009–2010. As you know, the U.S. housing market had just crashed. If you had the capital, you could buy some houses for next to nothing. And that’s exactly what I did…
During that period, I bought six single-family homes. I bought one of them for just $10 per square foot. I spent another $10 per square foot fixing the place up, so I put about $20 per square foot all in.
The guy before me paid $160 per square foot and ended up in foreclosure. He bought near the peak of the housing bubble. My timing was much better.
Today, I’m not adding to my real estate bucket. There just aren’t that many great deals out there. This is key to how I invest. Rather than fight the market, I let it determine how I allocate my money.
J.S.: Can you tell us about some of your other buckets?
E.B.: Well, I have a bucket for gold. But I don’t view gold as an investment designed to make money. I see it as a key long-term asset.
When gold is cheap, I pour money into this asset. I don’t think about this bucket often. I just get the gold, vault it, and move on.
I also have a permanent life insurance bucket. This bucket is important because I have a few people that depend on me. If I die, they’re out of luck. So, I need to have life insurance.
Specifically, I own a couple dividend-paying life insurance policies. A lot of people consider these terrible investments, but that’s because they don’t understand them.
You see, any extra money that I put in this bucket on top of the minimum annual premium grows 6% to 7% per year, tax free. If I don’t use the policy, over time I’ll have a fairly large amount of cash in that bucket that I spend, borrow from, or use to buy more life insurance.
And, of course, if the worst does happen, my dependents receive a large death benefit. This money will help them get by in my absence.
J.S.: Interesting, it sounds like this bucket protects you and gives you flexibility.
E.B.: Exactly. The reason I invest this way is because it makes me less “fragile.”
Now, I still have plenty of exposure to rising asset prices in other buckets. But, if you’re smart about when and how much you add to each bucket, your “boring” buckets will eventually balance out your more speculative buckets.
The result is a more stable financial situation without giving up the quest for profits. I like investing this way because I no longer worry about trying to maximize my profit on every trade or every time the market changes course.
J.S.: Let’s talk about your stock buckets next. I’m sure our readers would love to know what’s in your portfolio.
E.B.: Sure. As I said earlier, I have two of them.
One is for stocks I plan to hold for the long haul. I don’t trade these stocks often. I’m only a seller if something happens that changes the business landscape for one of the companies. I typically own between six and eight of these companies at any given time.
One of my favorite long-term holdings is a company that make crackers you buy at the gas station and pretzels that go well with beer. Last year, the company acquired a business that sells almonds and other nuts.
It’s a great company. And it now pays me a decent yield of 3%, since I’ve owned the stock for a few years.
J.S.: What are some of your other long-term stock holdings?
E.B.: I also have shares of one of the country’s best regional banks. And I own shares of one of America’s most iconic companies. This company is basically a drug dealer, peddling sugar and caffeine from small rented stores.
You get the picture…
Now, these aren’t the most exciting investments in the world but, over time, you see the value of owning rock-solid American businesses.
You end up with companies that slowly capture market share from their competitors, invest money back into their businesses, and pay dividends. I don’t see how you can get hurt having this bucket represent 20% of your net worth.
It’s also worth mentioning that I like to own these stocks in company-sponsored dividend reinvestment plans.
Since these are long-term investments, I don’t want to log into a brokerage account and see them next to my trading positions every day. Holding them directly on the company’s books means all my dividends get reinvested into additional shares, usually at no cost. The final benefit is I don’t have to worry about my broker going bust. Holding shares directly registered with a company means there’s nobody standing between you and your investment.
J.S.: That leaves us with your speculation bucket. Can you tell us a little bit about this one?
E.B.: Ah, my favorite. I’ve done fairly well speculating. The key here is separating good speculations from bad ones.
As a professional investor, a lot of opportunities come across my desk. Most of them aren’t worth my time. You have to pass on a lot of bad speculations before you find a great one.
J.S.: Can you tell us about one of your better speculations?
E.B.: At a lunch meeting with my banker in 2009, he told me about a company in town that invented a hurricane simulation machine. They placed a few in malls, shopping centers, arcades, and museums and charged $2 per customer. The test machines took in $4,000 to $5,000 per month. The company built each machine for around $12,000.
The company had trouble getting a bank to lend it money. It was right after the financial crisis, after all.
I met with the company, saw the machine, and looked at their business plan. A few other investors and I funded the company. We bought preferred shares that paid a 20% dividend. We also received a portion of the company’s profits for the first two years, which boosted our initial returns.
Seven and a half years later, I’m still collecting monthly checks from the company. I’ve more than doubled my money, and I could sell the shares anytime I want.
J.S.: Have you done any other speculations like this recently?
E.B.: Yes. Before I got into this business, I ran a gold fund for a few years.
My former business partner from that fund just took his gold streaming and royalty company public. Our company policy does not allow me to share the name of the stock, since I own shares. I’m involved in that deal to the tune of about 1% of the company. I think there’s a realistic shot that I’ll make 5–10 times my money.
J.S.: Most people would kill to make that much on a single investment. Why are you so optimistic?
E.B.: I think it’s a good time to speculate on small gold and silver stocks. I especially like royalty and streaming companies like this one. They avoid the tremendous financial burdens that mining companies face.
I also look for companies that have a winning strategy but that are overlooked by the market. If these companies execute, my odds of success go up.
But you need to have cash on hand, or what some people call dry powder, to take advantage of these opportunities. That’s because great deals usually require quick action.
When one of my speculations is a winner, I’ll take profits and put them into other buckets, depending on what looks good at the time. I almost never leave the entire profit in the bucket it came from.
J.S.: Got it. So, do you like to keep a certain percentage in each bucket at any given time? What rules, if any, do you follow?
E.B.: I don’t really follow a set of rules when it comes to asset allocation. That makes it hard to take advantage of huge opportunities when they appear. For example, I wouldn’t have invested in the Florida rental real estate market in 2009 and 2010 if I stuck to strict rules.
When in doubt, you can divide new money equally between buckets. You can also sit on cash and wait for buying opportunities to present themselves.
J.S.: What kind of investments do you focus on in The Casey Report?
E.B.: That’s your most valuable question so far.
In The Casey Report, we fill the long-term stock and speculative stock buckets.
We try to predict what the investing world will be like one to two years down the road. We then buy stocks that will benefit most as the world changes. In stock investing, that’s the sweet spot where you find the most value in the shortest period of time.
Our goal is to beat the S&P 500 every year. We want our readers to have enough success to irritate their wealth manager. Hopefully, they can use that success and the lessons learned in The Casey Report to beat the market in their asset buckets.
J.S.: Thank you for your time, E.B.
E.B.: You’re welcome.
Editor’s note: In August, E.B. told his readers to buy a small North American mining company. At the time, few investors knew about the company. Its stock traded for less than $1. But E.B. said the stock wouldn’t fly under the radar for much longer…and he was exactly right.
In just four months, this stock has soared 115%. Normally, we wouldn’t encourage you to buy a stock after an explosive run like this. But E.B. recently went on record and said, “the stock doubled, it will double again.”
To see why, watch this brand-new presentation. It talks about an event that E.B. says will take place exactly one month from today. If the event goes as expected, this stock should skyrocket again.