By Chris Reilly, managing editor, Casey Daily Dispatch
That’s the first word I can think of as I look through E.B. Tucker’s Strategic Investor portfolio right now.
Actually, “impressive” may be an understatement.
E.B. currently has zero recommendations in the red in his core portfolio.
Seventeen stocks – spanning multiple industries – are all up. And I’m not talking 5% gains.
In short, E.B. has absolutely killed it this year. Here are some of his year-to-date gains:
Yes, the S&P 500 is wrapping up a tremendous 2019, rallying 27%.
But as you can see, E.B. found different ways to double, triple, and nearly quadruple its performance.
Now, you may think his success has to do with some highly complex strategy. But that’s not the case…
I’ve worked closely with E.B. for four years now. And I can tell you his approach is simple. More importantly, it works.
In short, E.B. has developed an effective “five bucket” strategy. This is where he takes his portfolio and divides it into five tailored categories. It works in any market. And it allows him to diversify (meaning spread his risk around) while still keeping his upside intact.
Today, as part of a special Dispatch, you’ll get an inside look at how it works.
Below, E.B. tells me how he manages his own money… how he’s able to consistently beat the market… what his favorite speculations are for 2020… and much more.
Managing Editor, Casey Daily Dispatch
Exclusive Interview With E.B. Tucker: The “Five Bucket” Strategy
Chris Reilly, managing editor, Casey Daily Dispatch: Hi, E.B. Thanks for joining me. Today, I want to talk about investment strategies.
Could you tell us how you manage your own money?
E.B. Tucker, editor, Strategic Investor: Sure. 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.
Chris: 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.
I do think the real estate market has stalled, and if I’m right, I’ll be very excited about real estate in another year or two.
Chris: 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’m not adding any more gold right now because the price looks like it’s taking off. The past seven years, while the gold price went nowhere, was a great time to build a physical hoard.
On that note, it’s important to mention that gold is a cyclical asset. That means it tends to get hot and go on a run. The run usually lasts several years and includes a few soft patches, which savvy investors use to get in.
Cyclical means there’s a downside to the cycle. That’s where we’ve been for a little over seven years. From my view, we’ve officially entered an upswing in the cycle. My guess is it will take another few hundred dollars per ounce before people outside of the gold business take note.
I also have a permanent life insurance bucket. Specifically, I own several dividend-paying life insurance policies. A lot of people consider these terrible investments, and they’re not entirely wrong. However, I’ve found they work well if designed properly.
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 can spend, borrow from, or use to buy more life insurance.
This bucket is important because I have dependents. If I die, they have the insurance money to supplement my estate. If I live, I can use the life insurance policies as estate-planning tools. My strategy in this realm contrasts with term life insurance, which expires worthless and becomes very expensive to renew.
Chris: 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.
At some stage, a successful investor realizes he’s not trying to “get rich” anymore. Now, the game is “stay rich,” which means not swinging for the fences on every pitch. Seeing assets as buckets of risk helped me become a better manager of my wealth.
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.
Chris: 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 was a cracker and almond company called Snyder’s-Lance. I planned to never sell shares. That’s how much I liked the business. Unfortunately for me, a larger food conglomerate came in and bought the company at a premium. I booked a nice profit on the deal.
The company that bought Snyder’s-Lance had a tough 2018, and I picked up its stock on the lows. My guess is I’ll have that for years.
I went to the company’s annual meeting in 2018 to shake hands with management. There’s no better way to judge a person’s competence. These meetings are open to shareholders and I find almost no one attends.
The point here is these are real businesses, real investments, not hot-potato trades.
Chris: 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. It just merged to become the sixth-largest bank in the country by one metric.
I like the banking business on a regional level better than national. I also prefer regional banks to local banks. Regional banks have a fighting chance against nationals. Scale matters more than ever in the business of money today. Local banks might run into trouble as the industry goes digital and interest rates hover at record lows.
I had shares of Starbucks for a few years – until I attended its annual meeting, which zapped my bullishness. Turns out I was wrong to sell that one. It went on a roughly 75% run after I sold. That’s a reminder that generally my buy-and-hold strategy works with stable businesses… like coffee or canned soup.
You get the picture…
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.
Chris: 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.
Chris: Can you tell us about one of your better speculations?
E.B.: I got an email in the spring of 2017 from a friend offering me a few shares in a blockchain mining company trying to go public. Shares were very cheap, since this was still a private company.
I knew a lot about bitcoin and how it works, but truthfully, I had no idea what this company was going to do. I also had no idea that my timing on the investment was as perfect as any I’ve ever made. I sold out of those shares during the bitcoin mania, booking a 15,000% gain on one of my sales.
An overlooked part of profitable speculating is knowing when to sell. For example, in December 2017, four days before bitcoin hit its all-time high, I pleaded with readers who owned any to sell at least enough to recoup their initial investment.
As you know, bitcoin went on to fall roughly 75% in 2018.
Chris: Very impressive. I remember that call well. It was spot-on.
So what are some good speculations for 2020?
E.B.: I think it’s a good time to speculate on small gold and silver stocks. I especially like royalty and streaming companies. They avoid the tremendous financial burdens that mining companies face.
There are only six viable royalty companies in the gold sector, in my opinion. That compares to thousands of hopeful exploration companies. Few of those will amount to anything.
The word royalty is important. Its root, “royal,” tells you what this is all about. You won’t see a prince with a shovel in his hand. Instead, he’s collecting a fee from someone else’s efforts. The way I see it, you’ve got to decide if you’re going to invest like a king or a peasant.
I’m heavily invested in a high-growth gold and silver royalty company. I also made a big investment into a new royalty company last year focused on metals needed for electric vehicle batteries. The company is private but plans to go public next year. I’m optimistic about my timing on that deal, too.
It’s important to mention that 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.
Chris: Got it. 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. The reason why is speculative stocks only deserve a small percentage of my net worth. When they perform well, that small percentage grows tremendously. You have to keep an eye on what the overall market is up to. If you see rampant speculation, like I saw with bitcoin in December 2017, you might want to shrink the speculative bucket dramatically before the excitement fades and the market dries up.
The same goes for the Florida real estate I bought in the 2009-2010 downturn. At the time, that was a big percentage of my net worth. Everything was cheap, if you recall. If I were rigid with percentages, I might not have made that decision, which turned into one of the most lucrative I’ve ever made.
The one piece of advice most people don’t want is to recognize how important it is to sit on a lot of cash. This way, when opportunity shows up, you’re ready. When things get very cheap, most people don’t have cash. That’s why most people watch once-in-a-lifetime asset-buying opportunities come and go, only to say they wish they’d had the money.
What is “a lot” depends from person to person. For me, if I’m 25% in cash, that’s pretty good. In the 2008 market crash, you didn’t need to be 100% in cash to take advantage. I had stocks that went down a lot. However, I had some cash to take advantage of opportunities. Those paid off tremendously.
Chris: What kinds of investments do you focus on in Strategic Investor?
E.B.: That’s your most valuable question so far.
In Strategic Investor, we fill the long-term stock and speculative stock buckets.
We’re out to beat the S&P 500 index, year-in and year-out.
Now is a time when conventional wisdom favors buying the index and never thinking about it again. We want to beat the index, and we tell readers exactly how we do it in the process. We want our readers to have enough market success to irritate their wealth manager.
Hopefully, they can use that success and the lessons learned in Strategic Investor to beat the market in all of their asset buckets.
Chris: Thank you for your time, E.B.
E.B.: You’re welcome.
Chris’ note: As E.B. mentioned, one of his key buckets is dedicated to finding the right speculations. And right now, E.B. says it’s a great time to bet on gold mining stocks.
Our founder, legendary speculator Doug Casey, agrees. And he just went on camera to explain why. It all has to do with a new gold rule… by far the most bullish sign he’s seen in 45 years.