Introducing Tim Melvin's Flagship Report

Newsletter Update

I wanted to get back to you as early as I could to introduce what we are going to do: turning Real Income Report into Tim Melvin's Flagship Report. Most importantly, this gives me the opportunity to use a really cool American Navy warship as a logo:

I have long said that in the newsletter industry, working with a publisher gets very difficult. Look at my own history. Every time I get in with a publisher, they control what we publish, when we publish it, how we publish it, how we structure it, and what the fulfillment looks like.

The important question in the publishing industry is not "Will it make people money?" but "Can we sell it?" They do not care much about renewals in my experience because they will just do a new promo to a new list and bring in a bunch of new subscribers. If it works, that is a bonus, but it has to be easy to sell.

Easy to sell means driven by politics, by tribalism, or promising gains that are impossible to achieve and maintain over a lengthy period.

We are not going to do that. I know from 40 years of research—of really digging into the markets, of crunching numbers, of learning from some of the best minds in the history of the business—what works and what does not. This includes some of the very best value investors, people who could trace their careers all the way back to one generation away from Ben Graham's original classroom, people who knew Ben Graham, who knew Warren Buffett.

Some of the best momentum investors, traders, and fixed income specialists have been generous in sharing their knowledge with me over the years. I made it a point to interact with and reach out to and talk with the very best investors of the periods of my career.

I have read everything I could get my hands on. That is my policy. If it agrees with me, I want to read it. If it does not agree with me, I really want to read it. I want to know what the other side of the story looks like.

One of the better pieces of advice I ever got was: if it can be counted, it must be counted. Everything must be tested.

It is not enough to have an idea. I have 10ideas a day, which equals 3,650 ideas a year. Probably 3,647 of those are bad ideas or average ideas when we actually test them on data over an extended period. They sound cool, they look cool, could sell like crazy, but they are not going to make anybody money. They are not going to be worth what you pay for them.

My thought was this: we know there are four things that individual investors should focus on based on where they are in their life cycle and what their goals are. These four things will fit everybody, whether you are in the hyper-aggressive "make it now" approach, or you are the person who wakes up at 60 and says, "I do not want to go through another 50% decline. I want something that will provide me above-average streams of income with a margin of safety. I can live with some fluctuation, but I need that income coming in constantly." Everything in between fits as well.

This is something that fits everybody and will allow you to achieve your goals, something you can use regardless of your personality. If you want to be hyper-aggressive all the time, if you like a little in-and-out action, this Flagship report can cover that for you. If you like being hands-on, digging in and doing special situations that nobody else is doing, that works fine. If you just want to sit back and collect cash and let it roll in, that is great. You want to look at your portfolio only once a month, make a few changes, move on with your life, go to a ballgame, play with the kids or grandkids, focus on your business or professional practice—whatever is important to you, The Flagship Report will work for you.

Here is the thing. We priced the Real Income Report for a REIT letter, and we have never changed the price. I have added the income portfolio. I have added a small-cap momentum portfolio. I am adding a small-cap deep value portfolio, and we are not changing the price. We are building, we are adding on, we are not raising the price. I want you to have everything that you need—things that we know will work for individual investors over periods of time to build wealth based on where you are in the life cycle.

Since 1972, when Sam Zell and a couple of other folks talked Congress into remaking the tax and pass-through structure of the real estate investment trust industry, REITs have handily outperformed the stock market as measured by the S&P 500. You have been better off in REITs most of the time. There is less volatility. You collect a lot of your return in cash. There is an excellent dividend growth component to real estate investment trusts. When you pay attention to quality and value, you gain an even deeper edge against the overall markets and against the larger REIT indexes. You outperform by 10% without doing anything, just static index to index. When you add value and quality and cash flow into the picture, we should be able to improve that further, especially if we make volatility our very best friend and buy when everybody else is selling, as I always tell you to do.

Equity REITs should be part of most investors' portfolios to some degree, and I would use them in place of the indexes.

Fixed income was the second thing we added as an alternative income strategy.

The top 1% does not have a secret option strategy. They do not have a secret trading strategy because they do not do any of that stuff. They made their money by running a business or some other way.

When you look at what the rich people are doing with their money, it is private credit, mortgages—particularly on commercial real estate buildings—arbitrage strategies, real estate lending, high-grade high yield, and other off-the-radar-screen strategies.

That is what the alternative income portfolio does. We are going to expand out a little. We are going to add things like arbitrage, higher-grade high yield that is not necessarily real estate or infrastructure backed, and we are getting more involved in private credit.

We would be deep into private credit in the form of BDCs if we were not just half a tick concerned about what will happen if the economy begins to weaken. We are going to add some components to get the yield pumped up such that it becomes a much better platform for alternative income investors. It is good right now. We are making it even better over the next couple of weeks.

Again, making volatility our absolute best friend is important. We tend to buy on big down days. We have them keyed up, ready to go. Today is not the day, but on the day we will pull the trigger and continue to build out the alternative income strategy.

Again, we are making everything better, adding more information, not adding a dime to the price. This is about building value.

Small-cap momentum is doing exactly what we said it would do: really high returns and really high volatility. There is lots of turnover each month, but fundamental momentum drives price momentum. We are happy with this portfolio. We love the stocks in it. A few have already become big winners and are heading off with the potential to be even bigger. Each month those that are not working or have run up too far too fast get chopped. We are not married to anything in the small cap momentum portfolio. If it stops performing, we are out. If it keeps performing, we will own it as long as that remains true.

We are adding a small-cap deep value portfolio.

This is how I cut my teeth, ladies and gentlemen. This is what I started doing back in the 1980s: Ben Graham style deep value investing. I am going to write a free article about this later in the week, but I will share this with you: Ben Graham, in the last interview he gave (published in Financial Analyst Journal), said, "Look, all that stuff that I used to do—going in and digging deep into the companies and doing the deep dive—it worked well in the 1940s, 1950s, and 1960s because I was the only one doing it. Well, since everybody is doing it, there is not really an edge, but never fear. What we have tested is that if you take simple strategies and build them based on valuation and buy 25 to 30 of these deeply undervalued companies based on different criteria, you can outperform the market."

We start from there. We add in a healthy dose of Marty Whitman-style credit analysis. Deeply undervalued companies with good credit or that have leverage and are paying back their debt outperform the market over time. Again, this is an area where you can really add tremendous value by being sensitive about volatility. This strategy does a little better than the market in normal times. When you are coming off a bad market when the market has cracked—think 2009, 2020, and some other periods where we have had big market dives, last April—you are talking massive returns to small-cap deep value.

We are adding this to the Flagship Report.

Wherever you are in your lifespan, if you are looking for steady compounded returns, then you want to be in small-cap deep value and REITs. You want to favor those small-cap deep value stocks that pay dividends.

Are you looking for just income and growth of income? REITs and Alternative Income Portfolio. That is your down-the-road strategy that will deliver what you need to meet your financial goals.

You want income with upside? That is a no-brainer. You want to be mostly in the alternative income portfolio. You will have an income element that is well in excess of inflation. You can set a little aside to grow the capital over time. Plus, we are valuation-sensitive in the portfolio. Making volatility work for us by buying when things are undervalued or trading at a discount gives us an edge and some upside on top of the very high levels of income we plan to collect off that portfolio.

This will fit where you are and your personality. If you are really aggressive, then you want to be mostly focused on the small-cap momentum and the small-cap deep value based on the current levels of market volatility. You want to be opportunistic with some of the alternative income and REIT situations, but the small-cap stocks will be your main focus.

Again, everything you need to meet your needs from way back here as a 25-year old all the way up here as a 65-year old going, "Hey wait, it is really important that I get my money back at the end of the day."

I could charge more. I have been told that I should charge more. I am not going to charge more. I know it is marketing 101—one of the first things you learn, that setting that price really high creates an aura of being exclusive, something that the poor folks cannot buy. I am not doing that. Yes, I want the guy with tons of cash. I want him in here as a subscriber. I want the school teacher who has been busting their butt for the last 30 years tucking money aside. They built up a nest egg that is critically important to them and they have their goals. I want them as a subscriber too. I want the small business owner who is trying to build his wealth and run and manage and fund his business at the same time.

Basically, I want to be widespread. I do not need to make all of my money off any one reader. I am looking for a pool of people who share similar thoughts, similar goals, who believe that focusing on value, on credit quality, on strength and fundamental strength, paying attention to the fundamentals, ignoring the noise. I believe that is the best way, the proven way to build wealth. If I can get a group of those together, I do not need to ever raise the price. That is where we are going with this.

We will be driven on a macro basis by credit spreads. High yield credit spreads give us the big picture.

When you have spreads that are like they are today—really tight, just going sideways, with no signs they are going up—then you want to be in high quality, high yield. You want to be in the higher quality REITs. You want to be in small-cap momentum in a big way and around the edges of small-cap deep value.

This is not the fantastic time to be a buyer. As a result, there is not really a lot of small-cap deep value. You kind of buy the ones that you like, but high quality, high yield, mortgage REITs, commercial mortgage real estate REITs? Yes, big time. Residential mortgage REITs? Yes, big time. That is where you want to be in this environment where credit is good, the price momentum is strong, the economy is basically pretty good, nobody is afraid of anything yet, the economy is humming along, inflation is not too bad. If you ignore all the noise coming out of Washington and Wall Street, things are actually pretty good. That is where we are right now. That is how we are advising folks to be positioned.

When they are low like they are today and they start rising, then you want to tighten up the quality in your portfolio. You are going to want at that point to be looking at maybe owning some gold stocks that have good fundamental and price momentum. You are going to want the really higher quality, shorter-term fixed income. You are going to want to limit yourself to the highest quality of business development companies in the private credit space. You are going to want really high quality REITs.

When they are really high and they are spiking up and they have that first down month, that is small-cap deep value time. That is where you are really going to hit a monster home run with small-cap deep value. About the third or fourth month of it going down, small-cap momentum is going to kick in in a big way. It is a great time for high quality, high yield bonds, for mortgage REITs of all flavors because they will be at very depressed prices. It is a fantastic time to be just piling into business development companies.

We have seen this opportunity before. We will see it again. Again, focusing on the quality of the BDC, the quality of the assets and the valuation, and buying when credit spreads tell us that things are bad, but they are getting better. It is going to be—I hate using the phrase—but life-changing wealth, even for more income-oriented investors.

We are going to use credit spreads to determine the flavor of the mix, how aggressive or how conservative we are being.

We are putting all this in a wrapper. We are calling it Tim Melvin's Flagship Report. I am not changing the price. Each week you get a short video with a 30,000-foot macro view derived primarily from credit spreads, from National Financial Conditions Index, from data. Not from stories, not from rumors, not from arguments, from none of that. From what the data is actually telling us about the economy. We will do a little video on that. We will tell a couple stories maybe if we have something good going on, and then you will have the written report focusing on a different portfolio each week.

There is no point in talking to you about REITs every week. That is ridiculous. Once a month is plenty. We will do REITs one week, fixed income one week, small-cap momentum one week, and small-cap deep value one week. If there is anything that needs to be shifted around between those asset classes based on life cycle and what we are seeing in the real world, then I will tell you. It is up to you whether you do it or not, but I will tell you my thoughts.

That is the Tim Melvin Flagship Report. It is different from what anybody else is doing. It should work a lot better than what I think anybody else is doing. We will have more to say, particularly about the interplay and the magic that happens when you mix 50% small-cap momentum and 50% small-cap deep value into a single portfolio.

For income investors, I am excited about the income portion of this. We are going to really deploy the alternative income strategies which can really help you get where you are going without having the broader risk of owning stocks.

We think differently than everybody else. It has worked for over 35 years. It does not go up every day. It does not go up every week. It will not make you rich by next Tuesday. That is okay. If you think the same, if you have friends that think the same, tell them about it. Again, this is going to be reasonably priced. I am not supporting an entire administrative staff, 20 writers. We do not have rents on downtown inner city office buildings that we have to pay. I just do not have any of that overhead. I do not have marketing people to think up stupid, dumb promises that I have no intention of keeping.

We use Beehive as a platform that takes care of all the payment processing and all that for us. I do not have the overhead. I do not have to charge you an arm and a leg. I could charge more, pay a couple marketing consultants to come in. I know some good ones. Hire a copywriter. I do not want to do that. I want to make you money. If I make you money, you will continue to renew, and I will continue to build a fantastic business. I think that is the way the business ought to operate. I am going to see if I am right or not because we are going to push this out and stick to our guns.

It is going to be REITs, just like we started with. We are expanding out the alternative income section. We are keeping the small-cap momentum going and we will add small-cap deep value to the portfolio.

Tim Melvin's Flagship Report. I like the name. I love the logo. I am a bit of a history buff, especially the Revolutionary War, and having grown up in Maryland and Annapolis, I am a bit of a Navy buff and a Navy football fan.

Starts Saturday. Go Navy.

I hope you like the changes. I hope you stick around, stick with us. There is a lot of money to be made exploiting all the volatility that is going to come our way over the next decade. I think that the broader markets are not going to do well over the next decade. That is what the macro stuff is telling us. We have an opportunity to be in those asset classes that have historically just blown away the broad market when things get a little rocky.

Thanks for being a part of the adventure this far. I hope you stay with us. I will do everything in my power to make sure this is powerful, interesting, educational, and occasionally entertaining.

We will talk again soon. If you have any questions, shoot us an email. I will get back to you usually within 24 hours. Thanks, everybody.