Our American neighbours have suddenly become quite respectful. When North Korean dictator Kim Jong II died a few days ago, they approached the Chinese government and held a meeting about the possible risks associated with the transfer of power to the Korean heir to the throne. Both nations are concerned that there could be political unrest in North Korea. And North Korea has nuclear weapons.
Those of us who grew up in the cold war know that these risks are real. In the 1960’s they built fall-out shelters and the Distant Early Warning Line. Remember the Diefen-bunker? It was a radiation-proof fortress built in a desert near Brandon Manitoba to house government officials in event of a nuclear attack. Remember “the hole?” It is a mile-deep tunnel drilled into the Canadian Shield near North Bay Ontario. It was built to house the NORAD command centre: they said it could withstand a direct nuclear hit. In the 1960s, Canadians were ready for trouble and made an effort to defend themselves.
Am I ready? Are you ready? Of course we’re not ready! The previous generation was ready because they survived the depression and the war. We survived rock and roll and the “dot.com” bust. For us, nuclear weapons and political unrest are part of information overload. We’ll just keep on dancin’ and see what happens.
In my investment book, Beyond the Bull, I discuss how information overload destroys your long term rate of return. The key to improving your long term return is to be constantly looking for specific economic information that is relevant to your specific investment techniques. Anything that is not what you are looking for is irrelevant overload. But if you have no pre-planned investment techniques, all economic information becomes equal in value. None of it has value because it’s not tied to your action plan.
Americans have military techniques: when they, or their allies, feel threatened, American aircraft carriers move into the region near the threat. In this case, they’d like to move those carriers into the Yellow Sea. The Yellow Sea borders both Korea and China: hence, they are being very respectful to China. Perhaps those carriers that have just been freed up from supporting U.S. operations in Iraq will find their way to this new theatre.
Similarly, Canadian pension plan managers have investment techniques: when one area of the investment world is underperforming, they like to redeploy their investments to more lucrative assets. For example, their stock market assets have produced a low rate of return since 2000, bonds have produced a good solid rate of return, and gold has been stellar. They would like to move assets from the stock market to bonds and gold. But it takes even longer to move a giant pension fund out of the stock market than it takes to move a fleet of aircraft carriers. The pension funds are so big that their selling can drive the stock market down. They have to make their moves stealthily, under cover of bullish rhetoric and strong earnings.
Investors with less than $50 or $100 million don’t have to pussy-foot around like that. We can switch from stocks to bonds to gold and back easily. What most of us are missing is neither intelligence nor liquidity. Most of us need investment techniques that will help us separate valuable information from noise. Most of us need to be like the American military or the Canadian pensions: we need to know what kind of information we are looking for and how to act when we find it.
Tuesday, 27 December, 2011
Monday, 12 December, 2011
Greco-Roman Economics: Tragedy or Comedy?
Greece and Rome, once cultural centres of the western world, have become modern day theatres in the drama of world economics. The tragedy is the outrageous debt levels Italy and Greece chalked up and the naiveté of those who kept on lending them the money. The comedy is the performances of politicians and labour leaders scrambling to centre stage to present their lines on how to solve the problems.
“To be or not to be…” That is the question the European unity is asking itself. Whether ‘tis nobler in the mind to suffer the slings and arrows of outrageous debt levels and, by opposing them, give rise to a sea of troubles… The economic scene has dramatically shifted since last summer’s performance by Americans when they faced their country’s debt downgrade. One after another, self-righteous Senators and Congressmen marched into the spotlight and delivered their scathing political lines. I am told that, in international investment circles, Americans are considered to be narcissists: they focus too much on themselves and have surprisingly little interest or expertise in non-American economics. It must be difficult for them to see their stocks and bond markets rocking and rolling to the beat of a European concert. They are not used to having Greek and Italian politicians move their markets.
American politicians, like Canadian investors, are not in charge of this drama. We are part of a supportive audience, applauding on cue, anxiously waiting for the next act.
I wonder what’s going on back stage. I’m wondering if, while all eyes are focused on the obvious, if there’s not something subtle going on behind the scenes.
Subtlety #1. Consider, for a moment, the basic plot of both 2011 Econo-plays: Down Grade America, and The Wheels Fell Off the Euro Van. In both cases, governments spend far more that they earn. In both cases, they have to spend less – and (horror of horrors) they may have to raise taxes to earn more. Both these economic actions (austerity and increased taxation) tend to cool off an economy.
Subtlety #2. Pension fund managers, the ones who control many hundreds of billions of dollars in investments, like to have lots of money invested in the best performing financial assets, and much smaller amounts in the weaker performing assets. Since the year 2000, gold has been the best performer, bonds have been great supporting actors and the stock market has been the worst. Pension plans would dearly love the stock market to go up. But, when economies cool off, stock markets usually cool off too.
Subtlety #3. The Stock markets have been particularly volatile since this year. January 2011 saw the S&P500 at 1260 and it’s around 1260 now. (For you historians, it was 1260 in January 1999 too.) There have been wild up moves and wild down moves this year, but no real progress in either direction.
I am wondering if our friends, the pension fund managers, are taking advantage of the wild ups and downs of this year’s stock market drama, to quietly achieve their goal of reducing their stock market holdings. Pension funds like to move stealthily. Because they are so big, they need time to accumulate and distribute their gargantuan positions. And the Greco Roman drama being played out now, along with all its volatility and emotion, is giving them what they need: the opportunity to sell without being noticed.
Individual investors or small institutions like CastleMoore don’t need time. We can sell out or buy in quickly, whenever we observe danger or opportunity.
In my investment book, Beyond the Bull, I wrote about developing investment techniques: pre-planned procedures that you will follow so you can buy when opportunity presents itself or sell when markets become dangerous. Our techniques will be different from the techniques of the mega investors because we have liquidity and they don’t. But 2011’s wild gyrations and Greco-Roman Euro-drama have given them just what they need: an emotional distraction that allows them to quietly distribute billions of dollars of stocks. Readers who have access to your pension plan’s investments, check to see if they have reduced their exposure to the stock market in 2011. It’s what their prudent management plan should call for. The process of institutional selling in sideways markets is called “distribution.” It is always followed by a bear market. 2012 could prove to be a dramatic year too.
“To be or not to be…” That is the question the European unity is asking itself. Whether ‘tis nobler in the mind to suffer the slings and arrows of outrageous debt levels and, by opposing them, give rise to a sea of troubles… The economic scene has dramatically shifted since last summer’s performance by Americans when they faced their country’s debt downgrade. One after another, self-righteous Senators and Congressmen marched into the spotlight and delivered their scathing political lines. I am told that, in international investment circles, Americans are considered to be narcissists: they focus too much on themselves and have surprisingly little interest or expertise in non-American economics. It must be difficult for them to see their stocks and bond markets rocking and rolling to the beat of a European concert. They are not used to having Greek and Italian politicians move their markets.
American politicians, like Canadian investors, are not in charge of this drama. We are part of a supportive audience, applauding on cue, anxiously waiting for the next act.
I wonder what’s going on back stage. I’m wondering if, while all eyes are focused on the obvious, if there’s not something subtle going on behind the scenes.
Subtlety #1. Consider, for a moment, the basic plot of both 2011 Econo-plays: Down Grade America, and The Wheels Fell Off the Euro Van. In both cases, governments spend far more that they earn. In both cases, they have to spend less – and (horror of horrors) they may have to raise taxes to earn more. Both these economic actions (austerity and increased taxation) tend to cool off an economy.
Subtlety #2. Pension fund managers, the ones who control many hundreds of billions of dollars in investments, like to have lots of money invested in the best performing financial assets, and much smaller amounts in the weaker performing assets. Since the year 2000, gold has been the best performer, bonds have been great supporting actors and the stock market has been the worst. Pension plans would dearly love the stock market to go up. But, when economies cool off, stock markets usually cool off too.
Subtlety #3. The Stock markets have been particularly volatile since this year. January 2011 saw the S&P500 at 1260 and it’s around 1260 now. (For you historians, it was 1260 in January 1999 too.) There have been wild up moves and wild down moves this year, but no real progress in either direction.
I am wondering if our friends, the pension fund managers, are taking advantage of the wild ups and downs of this year’s stock market drama, to quietly achieve their goal of reducing their stock market holdings. Pension funds like to move stealthily. Because they are so big, they need time to accumulate and distribute their gargantuan positions. And the Greco Roman drama being played out now, along with all its volatility and emotion, is giving them what they need: the opportunity to sell without being noticed.
Individual investors or small institutions like CastleMoore don’t need time. We can sell out or buy in quickly, whenever we observe danger or opportunity.
In my investment book, Beyond the Bull, I wrote about developing investment techniques: pre-planned procedures that you will follow so you can buy when opportunity presents itself or sell when markets become dangerous. Our techniques will be different from the techniques of the mega investors because we have liquidity and they don’t. But 2011’s wild gyrations and Greco-Roman Euro-drama have given them just what they need: an emotional distraction that allows them to quietly distribute billions of dollars of stocks. Readers who have access to your pension plan’s investments, check to see if they have reduced their exposure to the stock market in 2011. It’s what their prudent management plan should call for. The process of institutional selling in sideways markets is called “distribution.” It is always followed by a bear market. 2012 could prove to be a dramatic year too.
Wednesday, 30 November, 2011
Singin’ The Blues Again.
In August we observed that the Mediterranean region had become a hot-spot of human activity. On the north shore we had the debt burdened nations of Greece, Italy, Portugal and Spain rocking the European banking system. On the south shore we had the nations of Egypt, Libya and Tunisia violently turfing out the military dictatorships that had dominated them for so long. Crisis sometimes brings out the worse in people. When we observe the hot-heads on the north shore or the civil warriors on the south shore, we know we are not observing harmony, cooperation and understanding.
As a financial philosopher, I am concerned about two things: will the bad energy that surrounds the Mediterranean spread? – And what should we do to protect ourselves?
My first concern seems easy to answer, doesn’t it? It’s already spreading. From a sociological point of view, the “Occupy” movements seem an extension of Mediterranean unrest. In the USA, the emergence of The Tea Party, a protest movement of the right, seems like a reaction to corruption and incompetence in the status quo. In Canadian politics, the demise of the Liberal Party and the Parti Quebecois in this year’s federal election could be interpreted as discontent with the establishment. A good observer can make the case that the hot-headed rebel spirit that has affected the Mediterranean region is spreading.
In a September article I commented on the late Col. Muammar Gaddafi, wondering if he had a good “plan B.” Now that he’s been hunted down and executed, we see his plan B wasn’t effective. Now I wonder about Bashar al-Assad of Syria. He’s in a deep hole right now: even his plan A seems unbelievably bad. Former Egyptian dictator, Hosni Mubarak is also in serious trouble. On trial for crimes relating to the deaths of the protestor/revolutionaries, his fate seems unavoidable.
Contrast the Plan B’s of these dictators with the plan B of arch-villain, Adolph Hitler. When Hitler’s reign ended, he disappeared. Some say he was killed, others say he escaped. But we don’t really know. Whatever Hitler’s Plan B might have been, it seems a lot more effective than Gaddafi, Assad, or Mubarak’s plan B.
My concern is your plan B. As the bad energy of the Mediterranean continues to spread through our complex world of international finance, how will you escape the ravages? The answer, of course, is quite simple: a good financial plan B involves selling your down trending investments and buying securities in up trends. In the August 2011 stock market selloff, we were told that gold and bonds were safe. But the truth is gold and bonds were going up as the stock market came down. The level of risk or safety in a given investment is a matter of judgment. The price trend is a matter of mathematics. But, whether you are making a judgment or following a mathematical model, in times of danger, your plan B must include a plan to sell. Whether you judge a given investment to be too risky or whether you see it’s in a down trend, you’ll sell it. So, in reality, there is no need for me to be concerned about your plan B – it’s easy for ordinary investors to sell.
The problem lies with those who cannot sell: the big pension funds and the big mutual funds. Because of their sheer size, their selling drives the market down. If they are too aggressive in their selling, they can cause the markets to go lower. Their plan B’s are different from ours: they try to ride out the storm. That’s why they use economic forecasts. That’s why they diversify. That’s why institutional money managers are so expert at understanding the underlying value of the investments they own. The tools of illiquid investors are diversification, financial analysis and economic know-how. They don’t need to develop skills on when to sell out because they never sell out.
Expertise on knowing when to sell is left to smaller investors and smaller investment managers. It’s our advantage in down trending markets.
As a financial philosopher, I am concerned about two things: will the bad energy that surrounds the Mediterranean spread? – And what should we do to protect ourselves?
My first concern seems easy to answer, doesn’t it? It’s already spreading. From a sociological point of view, the “Occupy” movements seem an extension of Mediterranean unrest. In the USA, the emergence of The Tea Party, a protest movement of the right, seems like a reaction to corruption and incompetence in the status quo. In Canadian politics, the demise of the Liberal Party and the Parti Quebecois in this year’s federal election could be interpreted as discontent with the establishment. A good observer can make the case that the hot-headed rebel spirit that has affected the Mediterranean region is spreading.
In a September article I commented on the late Col. Muammar Gaddafi, wondering if he had a good “plan B.” Now that he’s been hunted down and executed, we see his plan B wasn’t effective. Now I wonder about Bashar al-Assad of Syria. He’s in a deep hole right now: even his plan A seems unbelievably bad. Former Egyptian dictator, Hosni Mubarak is also in serious trouble. On trial for crimes relating to the deaths of the protestor/revolutionaries, his fate seems unavoidable.
Contrast the Plan B’s of these dictators with the plan B of arch-villain, Adolph Hitler. When Hitler’s reign ended, he disappeared. Some say he was killed, others say he escaped. But we don’t really know. Whatever Hitler’s Plan B might have been, it seems a lot more effective than Gaddafi, Assad, or Mubarak’s plan B.
My concern is your plan B. As the bad energy of the Mediterranean continues to spread through our complex world of international finance, how will you escape the ravages? The answer, of course, is quite simple: a good financial plan B involves selling your down trending investments and buying securities in up trends. In the August 2011 stock market selloff, we were told that gold and bonds were safe. But the truth is gold and bonds were going up as the stock market came down. The level of risk or safety in a given investment is a matter of judgment. The price trend is a matter of mathematics. But, whether you are making a judgment or following a mathematical model, in times of danger, your plan B must include a plan to sell. Whether you judge a given investment to be too risky or whether you see it’s in a down trend, you’ll sell it. So, in reality, there is no need for me to be concerned about your plan B – it’s easy for ordinary investors to sell.
The problem lies with those who cannot sell: the big pension funds and the big mutual funds. Because of their sheer size, their selling drives the market down. If they are too aggressive in their selling, they can cause the markets to go lower. Their plan B’s are different from ours: they try to ride out the storm. That’s why they use economic forecasts. That’s why they diversify. That’s why institutional money managers are so expert at understanding the underlying value of the investments they own. The tools of illiquid investors are diversification, financial analysis and economic know-how. They don’t need to develop skills on when to sell out because they never sell out.
Expertise on knowing when to sell is left to smaller investors and smaller investment managers. It’s our advantage in down trending markets.
Monday, 24 October, 2011
Blue suit protesters
Have you ever meet one of those old fashioned 1960s left wing “save the world” radicals who seem to get off on protesting? They love to raise their voices in righteous outrage at the latest atrocity. They love the lime light – they love the sound of their own voices blended with a thousand other voices, all yelling in unison over some noble cause. The 1960s protest movement was associated with being young and hip and anti-war. But that’s all changed: the new generation of protesters is all about fiscal fairness and economic conservatism. And their leaders inhabit high places. Last weekend’s G-20 meeting illustrates the new era of protesting. This time it’s the blue suit boys protesting against the left-wing radicals. Canadian conservative finance minister Jim Flaherty protested the precarious predicament in Europe brought about by left wing Greeks building their economy on a mountain of debt. And that Olympian mountain of debt is threatening the world’s banking system. Greece’s problems are our problems.
What’s their problem? It’s simple. The Greek people collectively owe so much money the only way they can make their interest payments is by borrowing even more! It’s like kiting, on a grand scale. Kiting is a pre-bankruptcy phenomenon where an individual is so far in debt that he borrows on one credit card to make a payment on the other one. He keeps going back and forth between the credit cards alternatively borrowing from one in to make a payment on the other, until he max’s them all out and can no longer make any payments. There are only two things the kiter can do: dramatically decrease his spending and make payments from his earned income – or go broke. That’s the situation Greece is in right now. And, it appears that the old fashioned left wing style of protest is still alive and well in Greece. Unions are out if full force, shouting angrily that they don’t want to dramatically decrease Greece’s spending. Their problem is they don’t want to take the decrease in standard of living that is required to keep their economy going. And our problem is, when the Greeks default on their debt payments, the world’s banking system takes the hit.
That’s why Jim Flaherty and the G-20 blue suits are protesting. We are in trouble because of Greek monetary mis-management. But it’s not just the Greek borrowers who caused this problem. Who loaned them the money? What lender would advance money to someone they knew couldn’t pay it back? What kind of banker lends money without doing a credit check on the borrower? From one angle, the European bankers did it to themselves! If they had been more prudent in their lending practice, they wouldn’t be in the jam they’re in. Perhaps borrowing from the Greeks would have earned the banks an extra ¼ of 1% interest. That might have seemed like easy money for the Euro-banks if they didn’t check out the credit risk. Jim Flaherty and the blue suit protesters were waving their placards at loose lending as well as blatant over borrowing. The whole thing stinks.
And the stench seems to have crossed the Atlantic. A good old fashioned anti-establishment “Occupy” protest is spreading all over North America: the Occupy Wall Street movement. Young activists are raising their voices in unison, calling for an end to corporate greed. They could easily add sovereign debt greed to their list if indignities. But, it all makes sense, doesn’t it? Irresponsible mortgage lending almost broke the banks back in 2008 and 2009. Those same banks that had loaned American homeowners more money than they could afford to repay, were the ones that almost went under in the American sub prime mortgage fiasco. And now, in late 2011, the Euro-banks are threatened by irresponsible sovereign debt lending. And the Occupy protesters seem to have picked up on that vibe. Somehow, they seem to have recognized that same thing that Jim Flaherty and the blue suit boys have recognized. The big banks went way too far.
Now what are we supposed to do? It’s clear that the banking binge of the early years of the twenty first century has led to the current monetary morning after. It’s equally clear that there’s not a thing an ordinary person can do about it. We can’t save the world. But we can save ourselves.
In my investing book, Beyond the Bull, I outline a five step program for investment survival. Step 2 is having a plan and step 3 is acting on that plan. Protesters all over the world are warning us that there is danger blowing in the financial winds. And so far, the blue suit boys have muddled through it all and kept the boat floating. Each of us has to do the same thing in our personal financial world. This is the time to adjust your investments – the time to take less risk than you have ever taken. Once your financial house is in order, once you save your own world, you can pick up your placard and joint the blue suit protests.
What’s their problem? It’s simple. The Greek people collectively owe so much money the only way they can make their interest payments is by borrowing even more! It’s like kiting, on a grand scale. Kiting is a pre-bankruptcy phenomenon where an individual is so far in debt that he borrows on one credit card to make a payment on the other one. He keeps going back and forth between the credit cards alternatively borrowing from one in to make a payment on the other, until he max’s them all out and can no longer make any payments. There are only two things the kiter can do: dramatically decrease his spending and make payments from his earned income – or go broke. That’s the situation Greece is in right now. And, it appears that the old fashioned left wing style of protest is still alive and well in Greece. Unions are out if full force, shouting angrily that they don’t want to dramatically decrease Greece’s spending. Their problem is they don’t want to take the decrease in standard of living that is required to keep their economy going. And our problem is, when the Greeks default on their debt payments, the world’s banking system takes the hit.
That’s why Jim Flaherty and the G-20 blue suits are protesting. We are in trouble because of Greek monetary mis-management. But it’s not just the Greek borrowers who caused this problem. Who loaned them the money? What lender would advance money to someone they knew couldn’t pay it back? What kind of banker lends money without doing a credit check on the borrower? From one angle, the European bankers did it to themselves! If they had been more prudent in their lending practice, they wouldn’t be in the jam they’re in. Perhaps borrowing from the Greeks would have earned the banks an extra ¼ of 1% interest. That might have seemed like easy money for the Euro-banks if they didn’t check out the credit risk. Jim Flaherty and the blue suit protesters were waving their placards at loose lending as well as blatant over borrowing. The whole thing stinks.
And the stench seems to have crossed the Atlantic. A good old fashioned anti-establishment “Occupy” protest is spreading all over North America: the Occupy Wall Street movement. Young activists are raising their voices in unison, calling for an end to corporate greed. They could easily add sovereign debt greed to their list if indignities. But, it all makes sense, doesn’t it? Irresponsible mortgage lending almost broke the banks back in 2008 and 2009. Those same banks that had loaned American homeowners more money than they could afford to repay, were the ones that almost went under in the American sub prime mortgage fiasco. And now, in late 2011, the Euro-banks are threatened by irresponsible sovereign debt lending. And the Occupy protesters seem to have picked up on that vibe. Somehow, they seem to have recognized that same thing that Jim Flaherty and the blue suit boys have recognized. The big banks went way too far.
Now what are we supposed to do? It’s clear that the banking binge of the early years of the twenty first century has led to the current monetary morning after. It’s equally clear that there’s not a thing an ordinary person can do about it. We can’t save the world. But we can save ourselves.
In my investing book, Beyond the Bull, I outline a five step program for investment survival. Step 2 is having a plan and step 3 is acting on that plan. Protesters all over the world are warning us that there is danger blowing in the financial winds. And so far, the blue suit boys have muddled through it all and kept the boat floating. Each of us has to do the same thing in our personal financial world. This is the time to adjust your investments – the time to take less risk than you have ever taken. Once your financial house is in order, once you save your own world, you can pick up your placard and joint the blue suit protests.
Wednesday, 12 October, 2011
Apple - Rim
What marvelous creatures we investors are: so different and yet so much the same. Consider the pickle barrel that Steve Jobs and Jim Balsillie were in before Jobs’ untimely death: Jobs was the Chairman of Apple Inc. (AAPL), Balsillie of Research in Motion (RIMM). Both are/were billionaires because of their ownership of industry leading high tech firms. Since mid-2008, Jobs had seen his AAPL stock rise from under $165 per share to over $400 per share. Balsillie saw his RIMM drop from almost $150 to under $22 in August -2011. (These prices are all in US dollars) Jobs got way richer at the same time Balsillie got way less rich. Yet both are way richer than most of the readers of this article.
Big institutional investors like pension plans and mutual funds might own shares of both AAPL and RIM – and their holdings have been affected by the rise and fall of these two high tech giants. Although the professional decision makers for these mega investors may not personally own the shares, they participated in the rise and fall of these two high tech stocks. And their decisions to buy or sell their clients’ shares affect the rise and fall of AAPL and RIMM share prices – and they also affect the rise and fall of the financial net worth of Jobs and Balsillie.
Then there are the ordinary investors who may own shares of AAPL or RIMM. Most of us can buy or sell our whole position without affecting Jobs’ or Balsillie’s net worth at all.
Isn’t it fascinating how different we all are with respect to AAPL’s rise and RIMM’s fall? Different, yet, somehow, the same. Jobs and Balsillie were both Chairman of the Board and significant shareholders of their respective companies. One is a hero; the other – somewhat less than a hero. One became a lot richer than he was – one, somewhat less rich.
The mega-money portfolio managers are in the most interesting predicament. Imagine sitting at their computer screens, managing multi billions. Imagine you managed a huge portfolio of high tech stocks in June 2008, and your clients had approximately equal portions of RIMM and AAPL. Now, because of the rise and fall of these two giants, they have 20 times as much AAPL as RIMM. As the manager of these mega-funds, what should you do? One possibility is to readjust your holdings so you have equal amounts again. In this case you would sell a few gigs of AAPL and use the proceeds to buy RIMM. They call this “rebalancing:” it’s the kind of thing value investors do when one stock runs way too high and the other way too low. The mega-money managers realize that years from now AAPL might not stay the hot-stock darling it is today, and RIMM might not remain the ugly sister. Because their positions are so big, the mega-bucks managers can’t really sell out of the market all together. So they adjust the percentages of their holdings, maintaining a diversified portfolio at all times. It’s the prudent thing to do.
And what about you? What should you do? Most professional advisors encourage small investors to behave like large investors. Ordinary investors are encouraged to own large diverse portfolios and let the professional mega managers run them. That’s what the mutual funds business is all about. Small investors trying to behave like big investors.
But that is a serious error.
In my investing book, Beyond the Bull, I encourage readers to develop their own way of investing and to take advantage of their edge. Small investors have one huge advantage over mega-money. Liquidity. We can buy or sell RIMM or AAPL without affecting the price at all. So, why would we have owned a single share of RIMM since June 2008? Why not just sell out and be done with it? Why not just own AAPL, and nothing else, and get richer like Steve Jobs did? In fact, why would we ever own any investment that is not in an up trend? Why should we behave like mega-money at all?
We are all the same, yet so different. If we are high tech genius’, we should start a high tech company and get rich like Jobs and Balsillie. If we love the markets, we should get a high-priced job with a mega-money pension fund manager and prudently rebalance our way to the top of the heap. And if we are an ordinary investor, we should figure out how to tell an up trend from a down trend. Whatever of these three we pick, we can be successful in the world of money.
Big institutional investors like pension plans and mutual funds might own shares of both AAPL and RIM – and their holdings have been affected by the rise and fall of these two high tech giants. Although the professional decision makers for these mega investors may not personally own the shares, they participated in the rise and fall of these two high tech stocks. And their decisions to buy or sell their clients’ shares affect the rise and fall of AAPL and RIMM share prices – and they also affect the rise and fall of the financial net worth of Jobs and Balsillie.
Then there are the ordinary investors who may own shares of AAPL or RIMM. Most of us can buy or sell our whole position without affecting Jobs’ or Balsillie’s net worth at all.
Isn’t it fascinating how different we all are with respect to AAPL’s rise and RIMM’s fall? Different, yet, somehow, the same. Jobs and Balsillie were both Chairman of the Board and significant shareholders of their respective companies. One is a hero; the other – somewhat less than a hero. One became a lot richer than he was – one, somewhat less rich.
The mega-money portfolio managers are in the most interesting predicament. Imagine sitting at their computer screens, managing multi billions. Imagine you managed a huge portfolio of high tech stocks in June 2008, and your clients had approximately equal portions of RIMM and AAPL. Now, because of the rise and fall of these two giants, they have 20 times as much AAPL as RIMM. As the manager of these mega-funds, what should you do? One possibility is to readjust your holdings so you have equal amounts again. In this case you would sell a few gigs of AAPL and use the proceeds to buy RIMM. They call this “rebalancing:” it’s the kind of thing value investors do when one stock runs way too high and the other way too low. The mega-money managers realize that years from now AAPL might not stay the hot-stock darling it is today, and RIMM might not remain the ugly sister. Because their positions are so big, the mega-bucks managers can’t really sell out of the market all together. So they adjust the percentages of their holdings, maintaining a diversified portfolio at all times. It’s the prudent thing to do.
And what about you? What should you do? Most professional advisors encourage small investors to behave like large investors. Ordinary investors are encouraged to own large diverse portfolios and let the professional mega managers run them. That’s what the mutual funds business is all about. Small investors trying to behave like big investors.
But that is a serious error.
In my investing book, Beyond the Bull, I encourage readers to develop their own way of investing and to take advantage of their edge. Small investors have one huge advantage over mega-money. Liquidity. We can buy or sell RIMM or AAPL without affecting the price at all. So, why would we have owned a single share of RIMM since June 2008? Why not just sell out and be done with it? Why not just own AAPL, and nothing else, and get richer like Steve Jobs did? In fact, why would we ever own any investment that is not in an up trend? Why should we behave like mega-money at all?
We are all the same, yet so different. If we are high tech genius’, we should start a high tech company and get rich like Jobs and Balsillie. If we love the markets, we should get a high-priced job with a mega-money pension fund manager and prudently rebalance our way to the top of the heap. And if we are an ordinary investor, we should figure out how to tell an up trend from a down trend. Whatever of these three we pick, we can be successful in the world of money.
Gaddafi’s Plan B
The hunt is on. No one feels sorry for deposed military dictator Muamar Gaddafi. Somehow it appears to us that justice is being done. Earlier this month we heard that his interior minister had escaped to Egypt with his family. Has Col. Gaddafi done the same thing? The western press had always presented him as a mad man. But our own rational minds told us he couldn’t have been completely crazy because he held power all those years. We know there was some modicum of ruthless ration in that cloudy mind. Near the end of his regime, he was still shouting victory and defiance from wherever he was hiding. Did he really believe his own bull? Surely he saw the signs. Tunisia fell. Egypt fell. NATO forces had destroyed his military installations. Surely he saw. Was he, in his most desperate hour, able to muster up enough IQ to create and execute a Plan B? Or is he hiding in some hole like Sadam, when Iraq fell?
In my investment book, Beyond the Bull, I wrote about the concept of being objective. Holding our minds in an objective state helps us stay rational in an irrational world. I recognize the possibility that Col. Gaddafi’s world was irrational most of the time; but his predicament at this very moment is the result of a rational sequence of events. And his survival now depends of the viability of his Plan B. Beyond his world of power and wealth, beyond the illusion, was a rational sequence of events involving rebels, Tunisia, Egypt and NATO. Now that the man hunt is on, we all see how important it is to objectively see through the illusion of power and wealth and to objectively formulate a realistic Plan B for our survival.
In 1969, when Gaddafi took power, the Dow Jones Industrial Average closed the year at 800.40. When power was taken from him last week, the DJIA was 11,500. Col. Gaddafi got rich AND America got rich. How have you made out since 1969? Gaddafi’s time of prosperity and power has ended. Some say America’s time of prosperity and economic dominance is ending. (based on the failure of her biggest bluest chip companies in 2008-9 and the long term decline of the US dollar) But let’s stop pretending to be objective – there’s nothing we can do about Libya or America. What counts is us. Will our period of prosperity end? What are the signs we should look for? Do we have a Plan B?
Colonel Muamar Gaddafi is teaching us all we should do.
Lesson One: live in your world. Know your world. Know your strength and your weakness. Know yourself.
Lesson Two: objectively observe the world around you. How does it affect your world? What are the signs that your world is in danger?
Lesson Three: when you see these signs, what will you do? What is your Plan B.
In my book, Beyond the Bull, I write about Five Keys to economic success. The three lessons Col. Gaddafi is teaching us all right now are the first two keys. Now that he is a fugitive, he is involved in the third key: execute your plan.
Our sheltered world, our world of western wealth and peace, is quite different from Col. Gaddafi’s desperate world. Gaddafi’s Plan A kept him in power since 1969. Our Plan A gave us our life style since 1969 too. What we have in common with this hunted man is our need for an effective Plan B. Like him, we hope we’ll never need our Plan B. But when we see the signs, we’ll know it’s time.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
This article and others by Ken are available at http://kennorquay.blogspot.com.
Contact Ken directly at ken@castlemoore.com.
In my investment book, Beyond the Bull, I wrote about the concept of being objective. Holding our minds in an objective state helps us stay rational in an irrational world. I recognize the possibility that Col. Gaddafi’s world was irrational most of the time; but his predicament at this very moment is the result of a rational sequence of events. And his survival now depends of the viability of his Plan B. Beyond his world of power and wealth, beyond the illusion, was a rational sequence of events involving rebels, Tunisia, Egypt and NATO. Now that the man hunt is on, we all see how important it is to objectively see through the illusion of power and wealth and to objectively formulate a realistic Plan B for our survival.
In 1969, when Gaddafi took power, the Dow Jones Industrial Average closed the year at 800.40. When power was taken from him last week, the DJIA was 11,500. Col. Gaddafi got rich AND America got rich. How have you made out since 1969? Gaddafi’s time of prosperity and power has ended. Some say America’s time of prosperity and economic dominance is ending. (based on the failure of her biggest bluest chip companies in 2008-9 and the long term decline of the US dollar) But let’s stop pretending to be objective – there’s nothing we can do about Libya or America. What counts is us. Will our period of prosperity end? What are the signs we should look for? Do we have a Plan B?
Colonel Muamar Gaddafi is teaching us all we should do.
Lesson One: live in your world. Know your world. Know your strength and your weakness. Know yourself.
Lesson Two: objectively observe the world around you. How does it affect your world? What are the signs that your world is in danger?
Lesson Three: when you see these signs, what will you do? What is your Plan B.
In my book, Beyond the Bull, I write about Five Keys to economic success. The three lessons Col. Gaddafi is teaching us all right now are the first two keys. Now that he is a fugitive, he is involved in the third key: execute your plan.
Our sheltered world, our world of western wealth and peace, is quite different from Col. Gaddafi’s desperate world. Gaddafi’s Plan A kept him in power since 1969. Our Plan A gave us our life style since 1969 too. What we have in common with this hunted man is our need for an effective Plan B. Like him, we hope we’ll never need our Plan B. But when we see the signs, we’ll know it’s time.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
This article and others by Ken are available at http://kennorquay.blogspot.com.
Contact Ken directly at ken@castlemoore.com.
Suspicion!
Elvis sang it in 1962: “Suspicion! Torments my heart. Suspicion… keeps us apart.” His peaceful relationship was being torn apart by his suspicion that his woman was not, in fact, what she appeared to be. The investment world is a little like Elvis’ love life… things may not always be what they appear to be. In the investment world it pays (literally) to be suspicious.
Case in point: on September 1, 2011, the US dollar made an important show of strength. Market technicians would say the US dollar broke above a down trend line. On the same day, the Euro broke below an up trend line. Those were important events. I know that we are supposed to believe that western currencies trade in a free market, but I am suspicious that there is something hidden. Things may not be what they appear to be. I suspect there is another bank crisis looming – a crisis like the 2008/9 sub prime mortgage bank crisis. Only this time the culprits are the European nations of Portugal, Italy, Ireland, Greece and Spain. These so-called PIIGS of Europe are having difficulty paying their debts and are facing the usual consequences: bail outs, higher interest rates and credit downgrades. All this is old news. But September 1, 2011 marked a suspicious event in the currency world. It triggered a short term rise in the US dollar and a short term fall in the Euro. Something’s not right here.
In my investment book Beyond the Bull, I explain that in the financial world, everything is connected to everything else. This is how foreign exchange is connected to the European banking system:
European banks are highly leveraged. For every Euro of capital a bank has, it can create over 25 Euros of debt. By way of comparison, conservative Canadian banks can create less than 20 CDN dollars of debt for every CDN dollar of capital. The strange part is that the European banks hold most of their capital in US dollar denominated investments, even though the majority of their loans are in Euros. You can see how troublesome it is for them when the US dollar is weak and the Euro is strong. It really puts the squeeze on the European banking system. Their capital base drops in value because it is mostly US dollars. When the US dollar is weak, the European banks could have to start calling in their loans… for every one Euro their capital shrinks, theoretically, they’ll have to call 25 Euros of loans. That’s what went wrong in 2008/9. And one of the ways that crisis was handled was by strengthening the US dollar. In the three months from August to November 2008, the US dollar rose 20%. That means the European banks’ reserves would have risen by almost 20%. This currency driven increase in European bank reserves contributed to the saving of the banking system. My suspicion is that the September 2011 up surge of the US dollar and down surge of the Euro was a deliberate manipulation of the currencies. The G-8 nations have started to move the US dollar up and the Euro down because there is another bank crisis brewing.
Let us not be like Elvis; his suspicion was a curse that was ruining his love life. Let our suspicion be a blessing that will enhance our financial lives. Like Elvis, we don’t know what’s going on behind the scenes. But, unlike The King of Rock and Roll, we can use our suspicion in a constructive way.
In 2008, many of us were caught off guard – we were not suspicious enough. But not this time. Let the September 2011 up surge of the US dollar and the down surge of the Euro be a warning for us. Let us mentally prepare for a possible down-jolt in the stock market. Let us review our plan “B.”
In my investment book, Beyond the Bull, I encourage people to develop their own investment techniques. At my investment firm, CastleMoore Inc, we have preplanned investment techniques. We are ready for a crisis. Here are the essential ingredients for a good plan B: (1) observe the financial world, looking for something specific, (2) when you objectively observe that “something specific,” act in a pre-planned way. In this case, we see the sudden rise of the US dollar and simultaneous decline of the Euro. By the process of logic combined with suspicion, we recognize the increased risk in the stock market and the possibility of a 2008/9 style decline. In fact, the stock market sell-off of August of 2011 might have been the beginning of such a decline. What specific financial event can we look for that will be our signal to sell? And what will we do when we see it? What’s our plan B?
The world of finance is so much simpler than Elvis’ world of love and relationships. A financial plan B is just a matter of good business practice. What would Elvis have done if he found his woman with another man? For Elvis, plan B involved mending a broken heart. For us, a financial plan B means avoiding a broken heart.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
This article and others by Ken are available at http://kennorquay.blogspot.com.
Contact Ken directly at ken@castlemoore.com.
Case in point: on September 1, 2011, the US dollar made an important show of strength. Market technicians would say the US dollar broke above a down trend line. On the same day, the Euro broke below an up trend line. Those were important events. I know that we are supposed to believe that western currencies trade in a free market, but I am suspicious that there is something hidden. Things may not be what they appear to be. I suspect there is another bank crisis looming – a crisis like the 2008/9 sub prime mortgage bank crisis. Only this time the culprits are the European nations of Portugal, Italy, Ireland, Greece and Spain. These so-called PIIGS of Europe are having difficulty paying their debts and are facing the usual consequences: bail outs, higher interest rates and credit downgrades. All this is old news. But September 1, 2011 marked a suspicious event in the currency world. It triggered a short term rise in the US dollar and a short term fall in the Euro. Something’s not right here.
In my investment book Beyond the Bull, I explain that in the financial world, everything is connected to everything else. This is how foreign exchange is connected to the European banking system:
European banks are highly leveraged. For every Euro of capital a bank has, it can create over 25 Euros of debt. By way of comparison, conservative Canadian banks can create less than 20 CDN dollars of debt for every CDN dollar of capital. The strange part is that the European banks hold most of their capital in US dollar denominated investments, even though the majority of their loans are in Euros. You can see how troublesome it is for them when the US dollar is weak and the Euro is strong. It really puts the squeeze on the European banking system. Their capital base drops in value because it is mostly US dollars. When the US dollar is weak, the European banks could have to start calling in their loans… for every one Euro their capital shrinks, theoretically, they’ll have to call 25 Euros of loans. That’s what went wrong in 2008/9. And one of the ways that crisis was handled was by strengthening the US dollar. In the three months from August to November 2008, the US dollar rose 20%. That means the European banks’ reserves would have risen by almost 20%. This currency driven increase in European bank reserves contributed to the saving of the banking system. My suspicion is that the September 2011 up surge of the US dollar and down surge of the Euro was a deliberate manipulation of the currencies. The G-8 nations have started to move the US dollar up and the Euro down because there is another bank crisis brewing.
Let us not be like Elvis; his suspicion was a curse that was ruining his love life. Let our suspicion be a blessing that will enhance our financial lives. Like Elvis, we don’t know what’s going on behind the scenes. But, unlike The King of Rock and Roll, we can use our suspicion in a constructive way.
In 2008, many of us were caught off guard – we were not suspicious enough. But not this time. Let the September 2011 up surge of the US dollar and the down surge of the Euro be a warning for us. Let us mentally prepare for a possible down-jolt in the stock market. Let us review our plan “B.”
In my investment book, Beyond the Bull, I encourage people to develop their own investment techniques. At my investment firm, CastleMoore Inc, we have preplanned investment techniques. We are ready for a crisis. Here are the essential ingredients for a good plan B: (1) observe the financial world, looking for something specific, (2) when you objectively observe that “something specific,” act in a pre-planned way. In this case, we see the sudden rise of the US dollar and simultaneous decline of the Euro. By the process of logic combined with suspicion, we recognize the increased risk in the stock market and the possibility of a 2008/9 style decline. In fact, the stock market sell-off of August of 2011 might have been the beginning of such a decline. What specific financial event can we look for that will be our signal to sell? And what will we do when we see it? What’s our plan B?
The world of finance is so much simpler than Elvis’ world of love and relationships. A financial plan B is just a matter of good business practice. What would Elvis have done if he found his woman with another man? For Elvis, plan B involved mending a broken heart. For us, a financial plan B means avoiding a broken heart.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
This article and others by Ken are available at http://kennorquay.blogspot.com.
Contact Ken directly at ken@castlemoore.com.
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