How Human Nature Can Make You Rich


It’s human nature to generalize.  This fact can help make you rich if you learn how to avoid the generalization.  Generalizers lump many small pictures into one large collage that is usually flawed and incorrect.  Investing decisions derived from such generalized thinking are almost always wrong.  When the masses think this way they over buy a trend and create bubbles.  These bubbles should be avoided.

Our Personal investing Course Pi helps subscribers learn how to use experience and mathematics to spot good value for simple, but safe and profitable portfolios.  The Pi course studies investing in good value country ETFs that represent the Morgan Stanley Capital Indices of good value stock markets.

Seeking good value indices enhances opportunity because human nature creates a flaw in Country ETFs.   Investors are always looking to identify secular (long term) trends in markets, not just short-term trends, to succeed.  For example in the 1990s masses saw the importance of the dot com trend.  Dot coms became a popular secular trend for 10 years.  This trend was so popular it led to the dot come crash of 2000.

A positive long-term trend (five years or more) in indexing is not necessarily a positive development.  When the masses catch on and flood into a trend, a ‘bubble’ is formed. Bubbles lower the value of the index that tracks the trend.  Large stocks in most indexes usually become expensive at market peaks.  This type of popularity always leads to a crash.

Indexing has grown exponentially since 2009, because the idea really makes sense.  Indexing is easy, inexpensive and statistically gives the greatest safety and profit requiring a minimum of time, expense, effort and skill.

However indexing in popular trends can result in poor value when everyone jumps on board.

Indexing good value markets creates the opposite effect because good value is created when the majority jump off the bandwagon.

For example, we have identified an appropriate ETF for 22 out of 23 countries included in Keppler Asset Management’s study of MSCI World Indices of developed markets (Portugal is missing).

Four of the good value markets are Eastern European Markets (the Czech Republic, Hungary, Poland and Russia).

We have been tracking the iShares Eastern European Emerging Markets ETF, (symbol ESR) in our Pifolio of good value ETFs  but this ETF was recently closed along with 17 other iShare ETFs that were liquidated in August due to lack of popularity.   According to iShares: “All these funds are quite unpopular, as all had portfolios under $50 million. Among the ones to be closed iShares FTSE China is the most popular with an asset base of $36.3 million, followed by iShares MSCI EM Eastern Europe (ESR) with an asset base of $29.2 million.”

Lack of popularity does not mean lack of value.  Understanding this fact and investing in unpopular, good value ETFs  is an easy way to find safety and profit.

Gary

Learn how to invest in good value at our October 17-18 seminar.  There are four spaces left for the seminar.

Learn from two mathematical exports, Michael Keppler and Dr. Richard Smith on how to find good value.   Dr. Smith just sent me this note:  Gary, I’ve been just finishing up some brand new outstanding research that is rolling off the presses as I type.  You and your attendees are going to love it.  Richard


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