Ideas in the Wild: Richard Thalheimer Is Teaching Investors How to Achieve Astronomical Returns

Ideally, you always want to keep some buying power in reserve so that you can take advantage of the inevitable dips that happen. Use the famous mantra of Warren Buffet: “Be fearful when others are greedy, and be greedy when others are fearful.” By that, he means do not buy in at the top. Instead, buy in when things are falling and everyone is scared to buy.

Many investors wish they could see into the minds of the investing greats. They want to learn how they make their choices, with proven methodologies that beat the market again and again. In The Sharper Investor, Richard Thalheimer offers an unparalleled look behind the scenes, laying out his system for predicting success.

After spending more than twenty years curating winning products for The Sharper Image brand, Richard now applies his system to picking investments — with results that consistently beat the market. I recently caught up with Richard to learn more about why he wrote the book and the ideas he shares with readers.

What happened that made you decide to write the book? What was the exact moment when you realized these ideas needed to get out there?

It has been a twenty-year journey to develop a trading strategy that can produce returns of 30–100% a year. When I discuss investing with my friends, the same questions seem to come up over and over. I decided to put it all together in one place so that others can see how it is done!

The process of putting thoughts to paper (or a computer screen) is in itself an educational experience for me. It’s like the adage that “if you want to really learn something, teach it to someone else.” The process forces you to crystalize your thinking and refine it. Also, you find what does and doesn’t make sense as you write it out.

After I realized that my strategy was consistent and reliable, I started tracking my returns so that I could share them with my friends and readers- here’s a sample of my results, highlighting five years of solid performance. When we compare these with the Dow Jones, NASDAQ, and the S&P 500, you see that they are much much higher. And, when compared to other hedge fund managers that are well known in the industry, these numbers still are ahead.

Admittedly, there was one negative return year, with 2018 being a minus 10%. That was an odd year, as the fund was ahead by about 70% in October 2018. However, the markets really took a sharp turn downward after October, which wiped out the 70% and went into negative territory.

As an aside, it is an arbitrary measurement that we look at each calendar year. In reality, what we really should be measuring is the total over the entire period, and looked at that way, it is more like 700% since January 2017. Which is a really solid performance. If the formula could produce returns of 30% to 50% a year, I would consider that quite sufficient, and I do believe it will do that for the average investor who follows it with diligence.

Richard Thalheimer’s “The Sharper Fund” Performance Returns by Year

2021: +51.47% total return (as of October 30, 2021)

2020: +261% total return

2019: +96% total return

2018: -10% total return

2017: +92% total return

What’s the biggest lesson you’ve learned going through the journey you share in the book?

Stay disciplined and add positions, that is, average into your favorite stocks when there are dips or down periods. Do not get discouraged and sell at the bottom!

I apply this lesson every day. Averaging in, that is, adding to a position, is difficult to stomach emotionally when the position is down. However, you need to stay disciplined and buy more if you still have confidence in the stock.

When I discuss investing with other people, this is the single most outstanding difference between my approach and theirs. Most people just cannot handle the emotional distress of buying into a declining market. Yet that is exactly what we should be doing.

One of my favorite financial commentators, Jim Cramer, often talks about this subject. He makes the point that if you liked a stock at a price of $100, why wouldn’t you like it better at a price of $80? And like it even better at a price of $60? He compares it to going into your favorite store and finding that one of your favorite items is on sale. Who doesn’t like a sale? Especially if it’s 20–40% off!

Why do we find buying at a discounted price so difficult? Because we get fearful. We are afraid of losing what little we have left in a declining market.

Admittedly, for some investors, it does come down to the simple fact they cannot afford to lose anymore, and therefore they fearfully and reluctantly sell out at the bottom. So your strategy needs to understand this type of situation and keep yourself liquid enough that you are not in that position, not forced to sell out at the bottom. That means do not get so over-extended that you have no choice.

Ideally, you always want to keep some buying power in reserve so that you can take advantage of the inevitable dips that happen. Use the famous mantra of Warren Buffet: “Be fearful when others are greedy, and be greedy when others are fearful.” By that, he means do not buy in at the top. Instead, buy in when things are falling and everyone is scared to buy.

How will you apply this lesson in your life moving forward?

I apply this lesson every day. Averaging in, that is, adding to a position, is difficult to stomach emotionally when the position is down. However, you need to stay disciplined and buy more if you still have confidence in the stock.

So when the markets are in decline, what I do is put in small long positions on my favorite stocks, and I do it every day.

The actual amount that I buy can be fairly modest. I use long-dated call options, always two years out to expiration, and at a strike price that is about 10% above the current trading price on the stock.

That is, for me, maybe a $40,000 or $60,000 investment, though it controls maybe $400,000 worth of stock if I were to buy the stock instead.

Every day that the market continues to drop, I continue to add to the call option position, and at a lower entry price. I realize that if the stock continued to drop forever, this would be a very bad strategy and ultimately I would lose all my investment.

So I must understand the financial news and have confidence that the markets are not heading into another Great Depression like in 1929. Generally, at least for the past 20 years that I’ve been actively investing, a total collapse in the stock market is not what was likely to happen. On the contrary, the US economy has expanded, and markets have gone up with the economy. That tells me that if I do average into the dips, I will see positive results over a period of a few months or a year.

And, the proof has been that in fact my portfolio performance has been very positive, and a lot of the positive result is getting some very low buy-in prices at the dips. The actual dynamic is that you will start buying into a dip, and you will get a good price. However, it may dip some more, and if you buy in again, you get a better entry price, but it may not be the lowest possible because the dip may continue. However, if you are consistent and nibble in with your buying, you will get some at the bottom. Averaging it all together will make for a very attractive entry point.

Thank you so much for your insights. This was very insightful and meaningful.