Have you heard of the “10×10” Approach to investing?
It’s an idea we covered back in 2021 during a brief stint writing essays for the Casey Daily Dispatch e-letter.
Today, we thought we would share that essay with you… (and a couple of others in the series, next week).
With all our talk over the past few days about dividend investing, you may get the impression your editor doesn’t think much of growth stocks.
Wrong.
We love growth opportunities. It’s just that over time, we’ve seen how regular investors make big mistakes by approaching it the wrong way.
They tend to put all their proverbial eggs in one basket. When one sector is “hot” they go all-in. They either make money… or they lose money, search for the next “hot” sector, and go all-in on that too.
And on it goes. We figure that by the end of it, they likely haven’t made a single dime from their boom-and-bust investing strategy.
That’s why just over two years ago, we reminded folks of the “10×10” Approach. And given where the market is now, it’s the perfect time for a refresher.
The essay below was first published on May 3, 2021. We’ve made several edits to update and for context.
We’re certain you’ll like it. But before that, let’s check out today’s market action…
Market Data
The S&P 500 closed up by less than two points to end the day at 5,088.80… the NASDAQ fell 0.3% to close at 15,996.82.
In commodities, West Texas Intermediate crude oil trades at $76.55 down $1.89…
Gold is $2,046 per troy ounce, up $12 from yesterday…
And bitcoin is $51,059, down $588 since yesterday.
And now, back to our story…
Why We Like 1,000% Shots Best
The “10×10” Approach.
You couldn’t get a simpler way to invest.
Effective too.
So, what is it?
And what makes it such a great way to invest?
The “10×10” Approach is an idea we learned from investing legend Doug Casey.
It’s a simple three-step way to invest.
First, you take your investible capital and split it into 10 lots. Let’s say you have $50,000 either in investments or standing by ready to invest.
That means allocating $5,000 to each lot.
Next, you look for 10 separate investment ideas that have relatively little in common. Now, that isn’t always as easy as it first seems – it takes some thinking.
Finally, look for investments with the potential to earn you 1,000% returns over a business cycle. (For ease of understanding, think of a business cycle as the period between one stock market bottom and the next. Although it’s a little more nuanced than that.)
The reason for picking 1,000% gainers, or 10-to-1 shots (or 10-baggers), is that you only need one or two of your 10 investment ideas to pay off in a big way.
The rest may produce no more than average returns. Some may fail to take off entirely – potentially leading to losses. But even if only one of your 10-to-1 shots pays off, it will more than make up for any losses on your other investments.
Also, one or more of these columns can include dividend stocks. It will no doubt take more than one business cycle for a dividend play to become a 10-bagger, but that’s OK. You adapt your 10 columns over time.
You may have a column of investments that you hold for 20 or more years, paying dividends all the way. Other columns may only last for a year or two, as you speculate on a current trend.
One thing to note. Many people assume this means that every investment you make is a high-risk speculation or even straight-up gambling. That’s not true.
Don’t mistake making big returns for the riskiness of an investment idea. Risk is only part of the equation when it comes to measuring potential returns.
There’s also time.
Are you buying the investment at the peak or bottom of a business or stock market cycle?
And how much time do you expect to wait for the investment to play out? Some ideas may take 10 years due to a longer business cycle or slower growth.
Others may take only a few months to play out – especially if the idea is hot and you’re lucky enough to get in at just the right time.
Do This Simple Exercise With Your Investments Now
We’ll get into more details of how it works next week in TheDaily Cut. But for now, here’s the simple, three-step process of the idea…
Step 1: Take your total investible assets
Step 2: Split it into 10 equal lots
Step 3: Invest in 10 mostly unrelated investment ideas
Now let’s put this into practice.
Your next step is to break down your investments as they stand right now.
Take a piece of paper or create a spreadsheet with 11 columns.
In the first column, write all your current investments. Depending on how you have things set up right now, it may be a long list.
Next, starting at the top, you’ll move each investment into one of the other 10 columns. If your next investment is similar to the first one, put it in the same column.
If it’s different, put it in a separate column.
Work your way down the list.
Do You Have 10 Perfect Columns?
At the end, you’ll have several columns with your investments grouped under each. See how it looks. If you have 10 perfect columns, it likely means you’re well-diversified.
If you only filled a few of the 10 columns, it may mean you’re under-diversified. And if you had to create extra columns, it may mean you’re over-diversified.
Why is that bad? Well, for example, if you’re under-diversified… a plunge in one of the sectors you’re invested in could cause outsized losses for your portfolio. Can you afford that? Many can’t.
And if you’ve got 20 or 30 investment ideas… how can you stay on top of them all? You’ll likely miss crucial news or data that also affects your portfolio.
However it looks, you’ll have a great visual snapshot of your investments. Now that we’ve laid the groundwork, the next part of the exercise is to work out what to do next with what you’ve learned from the “10×10” Approach.
We’ll look at that in The Daily Cut next week.
Tune in then.
More Markets
Today’s top gaining ETFs…
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VanEck Gold Miners ETF (GDX) +1.9%
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Invesco Dorsey Wright Industrials Momentum ETF (PRN) +1.5%
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Royce Quant Small-Cap Quality Value ETF (SQLV) +1.3%
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First Trust RBA American Industrial RenaissanceTM ETF (AIRR) +1.3%
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Invesco S&P SmallCap Consumer Discretionary ETF (PSCD) +1.2%
Today’s biggest losing ETFs…
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First Trust Latin America AlphaDEX Fund (FLN) -2.2%
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SPDR S&P Telecom ETF (XTL) -1.8%
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SPDR S&P Semiconductor ETF (XSD) -1.6%
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Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) -1.5%
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Invesco DB Commodity Index Tracking Fund (DBC) -1.5%
Cheers,
Kris Sayce
Editor, The Daily Cut