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.
Monday, October 24, 2011
Wednesday, October 12, 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.
China – Shmina! It’s all bull!
We have been told for decades China is the waking dragon whose economic emergence will somehow fuel the world’s economy into prosperity. But, not according to Jim Chanos’ article in the September 26 edition of Bloomberg Bussinessweek. He points out that local governments in China have racked up $1.6 trillion in debts they can never pay back. Makes the Greek Euro-crisis look like a flea on a tiger’s back. He also points out how Chinese accounting is different from Western accounting. “The further down you drill on China, the more bearish you get…” His article concludes that American investors should sell short certain Chinese stocks and Chinese currency. Selling short is a technique where you make a profit when the stock goes down. Those Canadians who owned shares of Canadian/Chinese company, Sino-Forest know just what Chanos means. Sino-Forest stock dropped from $19.40 to $1.29 in June 2011 as certain accounting problems came to light.
In my investing book, Beyond the Bull, I point out how important it is to know about the concept of deceit in the investment world. Deceit is part of our modern commercial world. In the old days smoking cigarettes was OK. In late 2007 the world’s bankers were told that US mortgage-backed paper was a sound investment. In May 2008, just before the crash, we were told that we should buy resource stocks so that we would own “assets in the ground” to protect our portfolios against possible problems in the banking system. In a world dominated by politicians and financial salesmen, we know that economic reality is never as rosy as they say.
How can we survive in such a world? How can we thrive?
They key is in our focus. If we focus on the words of the politicians and financial salesmen, we know what to expect: more deceit. The key is to focus on our own personal financial world. What’s in our own portfolio? Is it going up? If it’s not going up, why are we invested in it? Our focus should be the price of our investments over time. If those investments are going up, we are succeeding. And, when the price trend of our investments turns down, we simply sell them. It’s a very simple plan, but it works.
A case in point would be the Canadian stock market. At the very top in the year 2000, the TSX composite hit 11,423. On October 4, 2011, it traded at 11,250. Holding a portfolio of Canadian stocks for the long term has not been a profitable way to invest. Gold, on the other hand, traded at $294 in the year 2000. Today it’s $1650. Gold is in a long term up trend, stocks are not. Financial planners will tell you that gold in speculative and stock mutual funds are not. That’s the deceit. Reality is gold has been going up for 11 years and stocks have been going up AND down. That’s reality.
A similar case can be made for the bond market: in early 2000, long term Canada bonds yielded 6.25%. Now the yield is under 3.25%. In the bond market, bond prices rise when interest rates fall. Those who bought long term bonds in 2000 and are still holding them have received 6.25% interest each year and racked up a sizeable capital gain. Financial planners told us that the stock market has outperformed the bond market over long periods of time: but that has not been true for the past 11 years.
Financial planners are usually mutual funds salesmen trying to persuade us to buy their product. It’s the “persuasive” element of this situation that gives rise to the deceit. The truth lies in the mathematics of your portfolio. Your investments are either in up trends or they’re not.
The key is our focus: if investors and financial planners had focused more on bonds and gold – and less on the stock market, they would have been much more successful during these past 11 years.
Beyond the Bull Accounting. Check in on your portfolio: is its focus correct? Does it contain only investments that are in up trends? At what price did you buy? What is the price now? Is your portfolio like a Chinese stock? – the story sounds good, but it doesn’t add up. The remedy? Sell your losers.
In my investing book, Beyond the Bull, I point out how important it is to know about the concept of deceit in the investment world. Deceit is part of our modern commercial world. In the old days smoking cigarettes was OK. In late 2007 the world’s bankers were told that US mortgage-backed paper was a sound investment. In May 2008, just before the crash, we were told that we should buy resource stocks so that we would own “assets in the ground” to protect our portfolios against possible problems in the banking system. In a world dominated by politicians and financial salesmen, we know that economic reality is never as rosy as they say.
How can we survive in such a world? How can we thrive?
They key is in our focus. If we focus on the words of the politicians and financial salesmen, we know what to expect: more deceit. The key is to focus on our own personal financial world. What’s in our own portfolio? Is it going up? If it’s not going up, why are we invested in it? Our focus should be the price of our investments over time. If those investments are going up, we are succeeding. And, when the price trend of our investments turns down, we simply sell them. It’s a very simple plan, but it works.
A case in point would be the Canadian stock market. At the very top in the year 2000, the TSX composite hit 11,423. On October 4, 2011, it traded at 11,250. Holding a portfolio of Canadian stocks for the long term has not been a profitable way to invest. Gold, on the other hand, traded at $294 in the year 2000. Today it’s $1650. Gold is in a long term up trend, stocks are not. Financial planners will tell you that gold in speculative and stock mutual funds are not. That’s the deceit. Reality is gold has been going up for 11 years and stocks have been going up AND down. That’s reality.
A similar case can be made for the bond market: in early 2000, long term Canada bonds yielded 6.25%. Now the yield is under 3.25%. In the bond market, bond prices rise when interest rates fall. Those who bought long term bonds in 2000 and are still holding them have received 6.25% interest each year and racked up a sizeable capital gain. Financial planners told us that the stock market has outperformed the bond market over long periods of time: but that has not been true for the past 11 years.
Financial planners are usually mutual funds salesmen trying to persuade us to buy their product. It’s the “persuasive” element of this situation that gives rise to the deceit. The truth lies in the mathematics of your portfolio. Your investments are either in up trends or they’re not.
The key is our focus: if investors and financial planners had focused more on bonds and gold – and less on the stock market, they would have been much more successful during these past 11 years.
Beyond the Bull Accounting. Check in on your portfolio: is its focus correct? Does it contain only investments that are in up trends? At what price did you buy? What is the price now? Is your portfolio like a Chinese stock? – the story sounds good, but it doesn’t add up. The remedy? Sell your losers.
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