The world is a little bit worse off now.
Richard Russell, editor of the Dow Theory Letters, died a few days ago.
Russell was kind of the grandfather of the financial newsletter business.
He started the Dow Theory Letters in 1958. He wrote and published it up until a week before he died.
He will leave a lot behind. For your editor though -- and hopefully for you -- he will have left some concise and ageless advice that is particularly timely for all investors right now.
3 Ways Richard Russell Made Me A Better Investor
Russell actually had a big impact on your editor’s own life, financially and otherwise.
There are three ways he did that. All of which are particularly fitting giving the state of the world today.
First, Russell showed his readers why it’s important to forget about the small stuff.
Russell spent a lot of time detailing debt leveraging and deleveraging cycles and how they affect the prices of all asset classes.
It is debt -- technically the expansion and contraction of debt levels -- which have driven every major bubble and bust throughout the past century.
The small stuff does not matter one bit.
The Fed may raise short-term interest rates quarter point by the end of the year. It may not.
The key is that it doesn’t matter. Long term interest rates matter far more, which the Fed doesn’t control, so they are far more important.
They show whether we’re in a leveraging or a deleveraging period. Right now, rates are low because demand for borrowing is low because most of the world is deleveraging.
This focus allowed Russell to get the big turning points in the market right time and again.
He showed stock selection, finding undervalued stocks, and everything else, though important, is quite secondary. Because if you can get the big picture right, you will do quite well anyways.
The second impact Russell had on your editor was in just 14 words.
In his 57 years in the investment analysis business, Russell learned the biggest risk all investors face is their own emotions.
In a bull market, emotions cause you take profits too early.
In a bear market, emotions cause you to hold on too long. Take the pain. Then, when the pain is so great, just sell out.
Since the rest of the market feels the same way and reacts the same way, that point of maximum pain inevitably turns out to be the worst possible time to sell.
As we saw in 2008, investors will not just sell at the worst possible time, but in a bear market, they will sell everything, walk away, and not come back until it’s prices are back up.
Russell can make you prepared to for the tough markets by providing the sobering reminder: In a bear market, everybody loses, and the winner is he who loses least.
Third is something even bigger to me.
Back in February 2009 I started a new financial newsletter.
It was meant to uncover unique investment opportunities that didn’t necessarily have to be stocks.
At the time, we were a month away from the beginning of one of the biggest bull markets for stocks in history.
Of course, as the cliche goes, it’s always darkest before dawn.
It was pretty dark at the time.
The opportunities available were just staggering. Aside from stocks, there were high-quality bonds paying 8% or more in interest with the potential to appreciate 200% or 300% too. And they were bonds!
The paradox, however, was the reason there were so many great opportunities is because no one wanted them.
I can tell you the potential investors weren’t just not interested in a financial research advisory service. They weren’t interested in investing at all.
The recommendations performed tremendously. There’s no way they couldn’t. We got the big picture right.
However, the service didn’t exactly sell well. I actually paid staff more out of my own pocket than from revenues.
Russell, however, stepped in during the toughest times to show me I was on the right path.
He must have been a reader because he took one of my articles, cut and pasted it, and sent it out to his readers with the note that he couldn’t have written it any better himself.
That was the greatest compliment I could have ever had.
More importantly, the note from someone who has been doing this successfully for as long as he had, let me know I was on to something at the time and should stick with it (more on that to come).
That’s Richard Lion Russell though.
He will be missed.