You don't hear much from George W. Bush these days. You'll occasionally see a clip of him at a speaking engagement or in a photo-op from time to time, but other than that, not much.
What's he been up to?
Allow me to share with you a prediction. I think he's preparing to make a big bet in a hidden, private stock market that regular folks aren't allowed to invest in. And in the next 12 months, I predict he'll make millions of dollars from one of his investments.
He wouldn't be the first ex-president to do so.
When Bill Clinton left office, he got into this little-known market in a BIG way.
According to Bloomberg News, Clinton made $15.4 million between 2003 and 2007.
Clinton isn't the only ex-president to cash in on this hidden investment market. Former President George H.W. Bush did it. So did his son, former Florida Gov. Jeb Bush.
This market is riddled with former government big shots. Al Gore, Rudy Giuliani and Colin Powell have all made money in it. I think George W. Bush will be next. It just seems to be the thing to do once you leave office.
The reason so many former politicians are involved in this underground investment market is because it's reserved only for society's elite. Typically, just 6% of investors are allowed to use it. You have to be worth millions of dollars, and your home equity doesn't count.
I'm talking about private equity.
The old adage "it takes money to make money" surely applies in this instance. Those with lots of capital to invest -- such as Warren Buffett, Goldman Sachs, George Soros and others -- can gain access to profitable deals that the rest of us can only dream of. In fact, the entire private equity (PE) industry has flourished thanks to its deep roster of industry contacts and uniquely structured financial dealings.
But the good new is I've found a backdoor into this market. In recent years, the playing field has been leveled, as PE-style investments have become more accessible to the average investor. More than a dozen publicly-traded firms are plying the waters, making savvy investments and sweetheart loans in private companies, and generating solid returns. These firms, known as business development companies (BDCs, need to be a part of your portfolio -- if you want to generate returns like Buffett, Soros and others.
Of course, not all BDCs are created equal. Below are the five simple rules I follow when picking the best BDCs for readers of my Game-Changing Stocks newsletter:
- Focus on BDCs that make safe loans to strong businesses that are generating positive cash flows.
- Look for BDCs that do the best job of managing risk by diversifying their holdings, with no single holding accounting for more than 15% of the total portfolio.
- Focus on BDCs that are able to borrow at extremely low rates, as they can generate even more impressive returns on their investment.
- Select companies that have strong insider ownership. A CEO whose net worth is tied to his stake in the company is a CEO who will act in the company's best interest.
- And lastly, seek out BDCs with a stable dividend history and a long-term track record of above-average share price gains.
Many investors looking at BDCs are immediately attracted to American Capital Ltd. (ACAS), simply because it's the big dog in the industry, with a market value exceeding $4 billion. And the fact that shares trade well below the net asset value of its holdings of $19 a share should surely get your attention. But part of the charm of BDCs is their robust dividend payment streams. And this company doesn't yet pay a dividend. It may look to do so in the future, and I'll give it a fresh look when that happens, but for now, I'm focused on income-producing BDCs.
I can't share the name of my favorite BDC out of fairness to my subscribers, but with a little research and focusing on the five rules mentioned above, you should be able to find the best BDCs on the market.