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Hedge fund manager James Altucher has organized his investing philosophy
largely around a desire not to worry.
"In markets like this, which go up or down 5 percent a day, it's too
stressful to be staring at a quote screen," he says.
Even in rough economic times, however, he has a method he says can help
investors rest easy at night: Focus on lasting demographic trends.
"There are these enormous demographic changes that are occurring across
the world right now that are almost like tidal waves behind certain
companies," he tells Madeleine Brand. "Invest in these companies now;
you can ride those tidal waves. You don't have to worry; you can hold
them forever."
In his new book, The Forever Portfolio, he explores how to ride these
"tidal waves" to financial security. You can hear his interview with
Brand in the audio above. He also offers his top 10 list of "forever"
investments below.
1.) Obesity: This trend is never going away. People get more and more
obese and some $30 billion a year in obesity-related costs are sucked
out of GDP each year.
Specific pick: RMD, ResMed, is my favorite play in the space. It makes
the masks that detect and help prevent sleep apnea, which is a condition
that results when the neck is obstructed from breathing at night because
of fat. This will not be affected by the economy, the stock market, a
housing slowdown, etc. The more people weigh, the more people need sleep
apnea masks, and RMD is the leader.
2.) Identity theft: The number of reported instances of identity theft
per year hasn't had a single downtick in 20 years, and it's only getting
worse.
Specific pick: Intersections (INTX) provides various services related to
identity theft: credit screening, analysis of unusual credit activity,
identity theft recovery services, etc. It trades for just three times
cash flow and has been destroyed in this market, but long-term it is a
safe bet.
3.) Money management: There's $100 trillion in wealth on the planet and
someone needs to do the job, even if there's volatility along the way.
Specific pick: Goldman Sachs. Let's not forget which company has, so
far, been "the last man standing," and it rules the world at this point:
Bush's Treasury secretary, Clinton's Treasury secretary, the president
of the World Bank, president of the Canadian Central Bank, governor of
New Jersey, Bush's chief of staff, former director of the National
Economic Council, and the list goes on. Warren Buffett is in the stock
at $120, which is almost double where the stock is now. Time to buy and
hold forever.
4.) Women's legs: A topic very important to me and 6 billion other
people. As women reach the age of 45-55 (and every year in the U.S. that
demographic gets several million people larger), they deal with issues
ranging from varicose veins to "what do I do with that tattoo I had put
on 30 years ago that's now all flabby."
Specific picks: RFID lasers are the trick — and the leaders are Cynosure
(CYNO), trading for just six times earnings, and Cutera (CUTR). Cutera
is interesting because the entire company trades for a $100 million
market cap, but it is profitable and has $98 million cash in the bank
and no debt. So you get the entire company, in an important demographic
space, free.
5.) Clean water: Half of the hospital beds in the world are filled right
this second by people suffering from diseases related to unclean water.
While the world's population has doubled, our use of water has tripled
since 1950. And how much more water is there to drink? Zero.
Consequently, ever larger portions of the planet are using water that is
deemed unsafe by current U.S. standards.
Specific pick: IDXX, Idexx Laboratories, has a growing division that
detects biological contaminants in water. This is not only a clean water
play but a terrorism play. Additionally, it has products that help
diagnose illness in animals, meaning it is good to cats — a nice bonus.
6.) Auto safety: Last year there were over 1 million auto-related
deaths. That number is only increasing as people all over the world
participate in the rural-to-urban move that is taking place in all
emerging economies.
Specific pick: Autoliv (ALV), with a 7 percent dividend, is the leader
in auto safety. It has the patents on air bags, seat belts, etc. The
U.S. mandates all of these products be put in cars, and other countries
are only beginning to do so. When they do, they go to Autoliv.
Consolation prizes:
7.) Chocolate
Specific pick: HSY
8.) More clean water
Specific pick: CCC
9.) See better
Specific pick: LUX
10.) Avoid pandemics
Specific pick: GENZ
Excerpt: The Forever Portfolio
by James Altucher
Forever Portfolio
The cover of author James Altucher's book, The Forever Portfolio,
published by Portfolio Hardcover.
From Chapter 4: Diamonds, Clothes, Chocolate
I've never before written about what I'm going to tell you, and there
are a few reasons why:
• It might appear like bragging, in a perverse sort of way;
• There's a shame factor, for various reasons;
• And it perhaps will destroy my credibility with some of my readers.
But in the summer of 2000, during the worst part of the dot-combust, I
lost about a million dollars a week for the entire summer. And no, it
wasn't some investors' money. It was my own. Well, so what? Everyone
lost a lot of money then. I had sold my first company for stock in
another company that eventually went bankrupt. That company was Xceed,
Inc. Some of my losses were due to that ill-fated decision to trade my
company in for what would become a worthless corporation. But also part
of it was simply due to the fact that I had never experienced a bear
market—or anything but a strong positive arc over my entire career.
When you constantly succeed in life, it's hard to recognize adversity
even when it hits you right in the face. Eventually, I lost an enormous
amount of money. I also ended up losing my apartment in TriBeCa—4,500
square feet on the top floor. The elevator opened directly into the
living room, where the first thing one saw upon entering the apartment
was an antique pool table (I lost that, too) and several thousand books
lining bookshelves that went from the floor to the twenty-foot-high
ceilings (most of those books are still in storage or have been given
away).
When the apartment was put up for sale, Christy Turlington, the model
best known for representing Calvin Klein, was one of the first to look
at it. After that, I garnered a reputation among high-end real-estate
agents for sticking too close to potential buyers, and as a result, I
was asked to vacate the premises anytime a buyer was coming over. So I
missed out on meeting Julianne Moore, Harvey Keitel, and one guy who
never gave his name and was arrested by the FBI the second he left my
apartment building.
How did I lose all that money? Did I spend it? Of course not. It's hard
to spend a million dollars a week, although I did try and I'm assuming
there are people out there who successfully do it. I will admit this
now: I had no clue whatsoever about investing and how to manage risk. I
did not construct a forever portfolio for myself. Instead, I only made a
"today portfolio" each day. I would load up on any stock I thought was
going to go up that day, 1999 style, and hope for the best. Even
thinking about it now, I feel sick to my stomach. After my investments
disappeared, my family wanted me to sue my stock broker. But he was a
good guy and certainly did not need to take responsibility for decisions
that were completely my own.
For years I lamented losing that money. After selling my place in
Manhattan, I basically sentenced myself to exile, moved upstate, and
only bit by bit came out of my shell and built my finances—and
myself—back up. I swore to myself I would not allow this to ever happen
to me again. So I studied the investment business like there was no
tomorrow, to make sure I would never make the same mistakes. I
successfully traded for several hedge funds. Then I started a fund of
hedge funds, and finally founded the social networking site for
investing, Stockpickr.com. Along the way, I did various M & A deals as
well as private equity investments that turned out well.
All of this is a roundabout way of saying that in 1999 I should've
stopped trading and bought myself and my family things that could have
made our lives better—perhaps more paintings, an incredible wine
collection, or a nice car. No matter how much I spent on luxury goods, I
never would have spent as much money as I ended up losing. And, look,
losing money is not the worst thing that can happen to someone. It
forced me to learn the investment business. It allowed me to gain
perspective on life in ways that I would not have otherwise. Now that I
am in a brand-new chapter of my life, I can write this book with the
hope that readers will gain the valuable insights that I lacked back in
1999, and avoid making the mistakes that cost me many millions of
dollars.
In hindsight, I should have spent like a drunken sailor. I should have
indulged myself and bought anything I wanted. However, there is an
upside. Not only do I have the opportunity again, but so will many of
the readers of this book. The worldwide luxury industry is booming. And
it doesn't matter if there's a subprime credit crisis in the United
States, a recession, or even a depression. Every year there are more
millionaires across the globe than the year before. The number of
households with cash assets of more than $1 million (that excludes real
estate) has doubled from 4.5 million in 1996 to 10 million in 2007. The
global net worth of these millionaires is expected to increase from $37
trillion in 2008 to $52 trillion in 2011, according to an analysis by
the consulting firm Capgemini.
As the net worth of these individuals continues to grow, the consumption
of luxury goods will also grow. According to the Telsey Advisory Group,
the size of the global luxury-goods industry is $150 billion. This
number is only going to increase over the next fifty years for several
reasons:
• Global net worth is increasing.
• It's another aftereffect of the rural-to-urban trend discussed
throughout this book. As third-world cities become centers of commerce,
this introduces new markets for luxury goods, as well as home bases for
newly minted millionaires.
• The luxury companies have continuously become more sophisticated in
using the high-end powers of their branding to sell products to
middle-income customers. Dana Thomas's book Deluxe: How the Luxury
Industry Lost Its Luster describes the origins of this trend in detail,
but a great example is how super fashion brand Christian Dior eventually
got into the T-shirt business (with J'adore Dior printed on the shirts)
to market its brand to everyone.
This is an industry that's surprisingly recession independent.
High-net-worth families are less sticker-sensitive, so luxury-goods
companies have more pricing power. And unlike lower-income spenders,
high-net-worth spending does not fluctuate with the unemployment rate.
In other words, the fastest growth in the demographic we are looking at
(high-net worth consumers who buy luxury items) is not happening in the
United States, but in South Korea, India, Russia, and other Asian and
Middle Eastern countries. A recession in the United States, while not
pleasant for anyone, will not affect the luxury industry as much as one
would think.
There are several ways to play the rise in the global wealth industry.
For one thing, as the number of families worth $1 million increases, the
need for advisers increases. Wealthy families need assistance with
everything from taxes to estate planning to investing — even art
collecting. High-end banks like Goldman Sachs (GS) and Credit Suisse
First Boston (CS) are the top two for dealing with this blossoming
trend.
Goldman Sachs is sometimes called a glorified hedge fund because so much
of its profit comes from its trading business. Goldman has avoided any
lines of business that tend to be most affected by global downturns. It
isn't a retail stockbroker, it doesn't do credit cards, and it's not big
in the mutual-fund business. And, I can tell you from my own experience,
you need a very large number to be welcomed with open arms by Goldman's
wealth-management division I'm not a Goldman customer .
enormous demographic changes.
Let's not forget the conspiracy theories on Goldman Sachs. Because of
Goldman's emphasis on its employees engaging in some form of public
service, the Goldman management team, for better or worse, has taken
this to an extreme. Here are some former Goldman execs who have ended up
more or less ruling the world:
Robert Rubin, former secretary of the Treasury
Hank Paulson, current secretary of the Treasury
Robert Zoellick, president of the World Bank
Jon Corzine, governor of New Jersey
Joshua Bolten, White House chief of staff
Kenneth Brody, former president of the Export-Import Bank of the United
States
Steven Friedman, former director of the National Economic Council
And the list goes on. I don't want to get into conspiracy theories here,
but if you're a very affluent individual looking for a place to put your
money, this is a good bet. I don't believe it's possible to find a safer
stock for the next fifty years than GS.
Excerpted from The Forever Portfolio by James Altucher. Excerpted by
permission of Penguin Group USA. All rights reserved.
enormous demographic changes
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