Some time back I imagine, a certain ‘financial expert’ said these words to you: “Invest for the long term in a diversified portfolio with the most beneficial tax breaks.”
Hmmm. How good do you think that advice was after you take an honest look at your portfolio today? If you don’t mind, I’d like to explain how that common advice is virtual suicide in today’s world and how, if you start to think differently, the most incredible opportunities will show themselves in the coming years, if not months…
You already know change is inevitable in life and markets. What many people need to come to terms with now is the increasing speed of change we are witnessing today. Good information has never been more vital.
What does this mean?
It simply means that the informed few who take action can make a fortune and sadly, it means that those who don’t will become even poorer. For example, money hasn’t actually been lost in this stock market; it’s been transferred from the people who made bad choices to the people who made good ones. Think about it: the people who sold stocks at the peak sold them to people who then went and lost money on them (usually the people who followed the advice of ‘experts’).
So much for investing for the long term. What about diversification? This means not putting all your eggs in one basket. The same propaganda is used in corporations when they talk about working as a team. The reality of teamwork is most often that the brightest person on that team is ‘diluted’ by the less bright in that team; a far better result would be achieved by identifying who the best person on that team was and only employing them.
Same goes for investments. What about putting all your eggs in one basket but keeping a close eye on the basket?
For example, I’m currently looking at a silver mining company. The stock is selling for below it’s break-up value, it has little debt and only priced at 8 times earnings. It’s current price is six times less than it’s peak and I’m bullish on commodities (see later on), particularly precious metals right now. Silver is used in a wide variety of manufacturing processes, hence the recent falls due to expected decline in demand.
What I will likely do is take a flight and personally investigate this further because I intend to invest a substantial amount possibly in that stock. If the investment performs as I hope, you could be talking about gains of 1,000% easily. If it doesn’t perform I’ll get out strictly at a 20% loss no discussions. If I have 10-20 such ventures on the go, very few of them will actually need to be winners to negate the losers, right? Caveat: IF I use a STRICT bail-out principle at 20% loss.
Nothing ventured, nothing gained, right?
Next: tax. This one has cost more people more money than you can imagine. For example, a few years back I bought an office condo unit. I doubled the rent per square foot simply by breaking the floor space into executive suites, but that’s another story. Anyway, I sold this at the peak of the market for a 30% profit with only 50% occupancy due to the real estate crash. The price was way too high and I was lucky to get out when I did. The reason I was able to sell it for this? The guy was so desperate to shelter his capital gains on another property he rushed in to buy something else (you can shelter capital gains if you invest the profits immediately in another property). This little tax break cost that person a lot more than the tax he would have had to pay on the capital gain.
Bottom line: don’t invest for tax breaks. Invest in a good investment then look for ways to legally shelter the gains.
What are the experts saying today? Of course, they’re saying that the year after a crash throughout history has seen a massive bounce back. And they’d be right to say this on an historical basis (even though their small print says historical performance is no guide!).
For reasons explained last week, we will no doubt see a powerful rally in the coming months. The same thing happened in 1930 after the great crash before plummeting 75%. Like I said, the historical precedents people are using seem to be dangerously recent for comparison in my view.
The thing is, what we’re experiencing now arguably, doesn’t have an historical precedent within the last 50 years anyway. The trouble with past data is that it depends on what part of history you look at. ‘Experts’ are keen on showing you gains over the period from 1982 until present. Why? Because that has been the longer term bull market. Now, had they shown you figures from 1966 to 1982, it would have been a different story: investing for the long term as they would say, got people nowhere. That was the longer term bear market.
So it pays to know about these cycles…
It’s Always Daytime Somewhere
Now of course, cycles aren’t guaranteed, but they have been a pretty good guide so far. There’s the 20-10 year cycle of stocks and commodities respectively that I’ll explain in a second, but first there’s a fascinating cycle on a bigger stage I thought you’d like to know about…
Every 500 years a seismic change occurs in history. Around 0 A.D. the Roman Empire was formed. 500 A.D. Rome falls and we enter The Dark Ages. 1000 A.D. Dark Ages gives way to Medieval times. 1500 A.D. Medieval times breaks into The Renaissance. 2000 A.D. we have the information revolution… and we’re still in it. That’s why we need to stay on our toes. It will make and break people.
Back to stocks and commodities. Generally the rule is 20 years favor stocks then 10 years after favors commodities. And sure enough, stocks had their run from 1982 to 2002. Sure, since 2002, stocks climbed but this was brought on by an artificial boost from the Bush government to stave off recession in 2002 (and has only served to prolong and extend the inevitable agony as we can now see). But government interference aside, since 2002 commodities have climbed; I advised friends to buy gold back in 2002 for $250 an ounce (it’s now over $800). And of course, oil we know about.
But recently, commodities have fallen drastically again. As explained, thanks to Bush pulling out the stops to get a second term, the 20-10 cycle was interfered with by delaying a recession. But only temporarily. We still have approximately 4 more years to go in the commodity cycle if the 20-10 rule stands.
Many insiders believe that what this mid-cycle commodity crash has done is create a buying opportunity for those who were late to get on board in 2002. It may have even made the opportunity bigger.
Let’s take wheat for example. Now, you can invest in wheat through wheat futures markets (speak to a broker). Wheat is a commodity that got whacked with everything else recently but before it was doing very nicely thank you. Only NOW, the wheat story is even more interesting because due to the credit crunch, farmers are struggling to get loans for more equipment etc. thus limiting the future crop yields. This of course, sends the price of wheat up if that happens.
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Another thing: when one asset bubble pops, another usually forms and this is usually government-induced. When the tech-stock bubble burst, the real estate bubble took over due to the Fed lowering interest rates drastically. Now that bubble has burst, interest rates can’t go any lower so the government is printing and spending money like crazy to get out of this. Which bubble will be formed here? What is the beneficiary of large amounts of paper money creation (inflation) and huge infrastructure projects (drained resources)? Simple logic would say (not I): commodities. So I rest my case about the 20-10 cycle, but we’ll see.
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Broaden your horizons. When it’s night-time in one part of the world, the sun is shining somewhere else. Oh, and next time an ‘expert’ tells you what to do, ask how much they personally invest in what they’re selling. Plus, it can be argued that in the current world anyway, hanging on tightly to supposedly safe investments can be fatal. At least keep your finger on the pulse of every dollar.
But of course, all investment requires cash in the first place. Where will that come from…?
Is it Crazy to Start a Business in Recession?
Good question and the obvious answer is a resounding “YES!” But Bill Gates and many others wouldn’t agree. He started during a recession.
What a recession does is cleanses the system. While sad, it means that the less efficient businesses will fail and the economy on the other side is a leaner, meaner one. Recessions are healthy and they ultimately mean less competition.
As we are already starting to see, recessions puts many companies at drastically discounted prices and you may even be able to buy an existing business for pennies on the dollar and that’s something I’ve done before.
But my advice would be to start a business yourself as cheaply as possible, preferably from home as a sideline. Investing the ‘capital’ of your time is way cheaper than the investment of your cash. With a home business, the down side is a waste of only your time, but the upside is massive. Sigh, if only all investments were like that!
Which business? Ah, for that I would hand you over to the multiple array of opportunities hand-picked by The League of Power, but here’s one thing I’ve learned: we’re conditioned into thinking, “If it sounds too good to be true, it probably is!”
From my extensive experience, I would argue the opposite more often than not. That saying is something slopped out by people who are dirt poor- why would you take financial advice from someone who is dirt poor??
Whenever I’ve found myself entering into something that made my heart beat because it wasn’t what the masses were doing or because it defied the conventional wisdom of the hour, that usually meant I was on the path to riches.
Right now, what is it people would say that you’d be crazy to buy into…?
Until next time,