How Investments Get All Wet


Since Earth Day this week, it’s a good time to take a look at investments in natural resources, like water.  This is a resource that is becoming increasingly more valuable.  Investing in water is a no brainer.  Right?

Such was my thinking when I first started writing about the Singapore water purification company, Hyflux, in 2004.   I invested myself.  The chart below shows how the share has performed since 2004.

tradestops

Hyflux shares did really well… for a while.

A reader sent this note:  “I know you’ve been investing in water companies for several years now, so I wanted to pass along this email update where I receive weekly roundups.  Today’s message addresses the growing need for potable water.

When time permits, please scroll down and read the article entitled  “More Precious Than Gold: Why You Should Invest in Water Now”.

The article featured shares in Hyflux, a water company, that just inked a long term deal with the Kingdom of Saudi Arabia to provide their citizens with water.

I replied that Hyflux may indeed be a good investment long term, (or not) but its share price failure over the past decade helped me shift totally to ETFs (except the sandalwood speculation I have).  I invested in Hyflux when it signed a similar deal with Libya before Gaddafi was removed.  The shares tanked.  A deal with Saudi Arabia may sound good, but the Middle East is a pretty volatile place.

I first wrote about Hyflux in 2004 when shares were in the .90 cent per share range.  The fundamentals were so good… the need for more water and Hyflux had a lot going on.  The price  shot to nearly $3.00 per share.  Wow, did I think I was smart! But, though the fundamentals for investing in water just keep getting better, here we are over a decade later with the Hyflux share price in the .40 cent range.

Only those who had a good stop loss in 2005 jumped out with a great profit.  But look at what happened next.  Even those investors who used a good stop loss had a hard time.  The pattern of the share price, the rapid rise, the fast decent and sideways motion from 2016 to 2012 was one that was mostly likely to create a Performance Gap.  Investors who were following this share reinvested in 2008 and were wiped out in 2009.  Then they reinvested in 2010 and were wiped out again in 2011.  This is the type of share movement where every type of investor (except those manipulating a market) lose.  This idea (investing in water) is right.  However, this specific share is an investor’s nightmare.

The current analysis at Tradestops.com  (1) shows that this share is in the SSI red zone (trending down) and it has a huge VQ of 39.6%.  This means that the share can rise and fall 39.6% without creating a trend.   This makes most stop losses meaningless.   These shares should only be viewed in the most highly speculative manner.

tradestops

tradestops

A recent article  in the Wall Street Journal “Indexes Beat Stock Pickers Even Over 15 Years” (1) backs up my decision to make life simple and invest in ETFs instead of specific shares.  The article reveals new data showing that 82% of all U.S. funds trailed their respective benchmarks over 15 years

It says, “Over the 15 years ended in December 2016, 82% of all U.S. funds trailed their respective benchmarks, according to the latest S&P Indices Versus Active funds scorecard. This was the first year that the analysis included 15 years of data, helping smooth out periods of volatility that can affect the performance of active managers.

“Among more than a dozen categories tracked, 95.4% of U.S. mid-cap funds, 93.2% of U.S. small-cap funds and 92.2% of U.S. large-cap funds trailed their respective benchmarks, according to the data.”

tradestops

The article pointed out how even the top performing managers were unreliable and gave the Sequoia Fund as an example.   This was the top performing large-cap growth mutual fund tracked by Morningstar for 15 years.  Then in 2015 the fund was badly burned by a heavy position in Valeant Pharmaceuticals International Inc. Valeant’s stock price has plunged 96% from its peak in August 2015.

This is why our course, Purposeful investment, focuses on the math nowadays rather than the fundamental ideas.

I still love the idea of investing in water, but if I were to do so, I would pick an ETF that tracks a water index.

For example, here is the five year share price chart for the Claymore Guggenheim S&P Global Water ETF (CGW) at www.finance.yahoo.com

water shares

Compare that performance to that of the Hyflux share chart at www.finance.yahoo.com

water shares

In addition the Claymore Guggenheim water ETF is in the green zone (trending up) and has a really low volatility quotient of  10.93% compared to the very high VQ 39.6% for Hyflux which is in the red zone (trending down).

tradestops

tradestops

One of our mantras is to invest in what we have a passion for.  Investing in water makes sense… if, water shares as a sector offer good value (and more so) if one has good diversification in the sector.

An ETF like this Guggenheim ETF provides the diversification, but its dividend in the last year was 1.52%.

Compared to the 3.27% dividend yield of the Keppler Asset Management Developed Market Top Value Portfolio we  track at our Purposeful investing Course shows that the value must be suspect.

keppler

Investing in water companies may not be much of a good value investment at this time.   This may be an idea with appeal that could leave our investments all wet!

Gary

(1) www.wsj.com: Indexes beat stock pickers even over 15 years

(2) Learn more on how to use the Tradestops.com “Magical Calculator” that shows how to improve investing discipline.

When Too Big To Fail Is Too Small

Our world turned upside down when, starting in late 2007, the real estate bubble popped.  Many Americans saw their homes slide underwater, their stock prices plummet and the earnings on their safe savings collapse to zero return.  That  financial ruin was created very much in part by banks that were “Too Big to Fail”.

Now as stock markets reach all time highs, another debacle is rising.  The tremors have already started, aftershocks from 2009, that can create a greater economic landslide.  There are numerous scandals at US and overseas big banks.  These calamities can make the safety net of “Too Big to Fail”, too small.  The disintegration that ensues could ruin average investors in three ways.

The risk is systemic because the bigger the bank, the more corrupt it seems to be.  This makes sense.  These banks have little to lose.  Why not cheat and take risks?  When fraud and speculation fail, the bank is bailed out by taxpayers.  No one, except the customer, gets too badly harmed.

Wells Fargo is an example.  Even after new regulations and backups were put in place after 2009, this entire organization continued to treat clients with complete disdain.

Here are some of the risks.

First, banks will have more opportunity to cheat because of increased stock market turmoil.  Every part of the US stock market has reached an all time high.  Global stock market volatility has also picked up.  The world is in a period of technological, political and economic transformation.  None of the old rules are as certain as they used to be.  Nothing makes markets shakier than the unknown.

Second, the new administration will reduce bank regulations.  Reduced regulations are good for business but big overseas banks have especially taken advantage of investors and home owners.  Foreign big banks have acted with impunity and need to be regulated.

Third, we’ll see rising interest rates.  Banks will raise interest rates as fast as they can.  The key to bank profitability is “Net Interest Margin”, the difference between the rate banks pay for deposits and money and what they charge for loans.   When interest rates collapsed in the late 2000s, banks made extra profit one time.  Their securities portfolios rose, loan defaults slowed and the cost of deposits fell.  Yet over time as new loans brought lower yields and the one-time boosts were gone, the lower interest rates squeezed bank profit margins.

The government and the Fed will want higher rates to avoid runaway inflation.  This will strengthen the US dollar short term but hurt the US stock market and the dollar in the long run.

The rising interest rates will be accompanied by inflation.  The government and the Fed do not want inflation but they will create it anyway.  They will spend more and reduce tax that increases US debt financed by savings from Europe, China and Japan.  Currently, America’s gross debt is more than $19 trillion, or 105 percent of GDP.  This has been sustainable in recent years because interest rates have been at historic lows.  As rates rise from slightly over 2 percent today to over 4 percent by 2019, government interest payments will more than triple from $250 billion in 2016 to more than $800 billion in 2026.  By 2030, interest alone will represent over 14 percent of the federal budget.  If interest rates rise even higher,  Federal payments will be even greater—a one percentage point increase costs the country an additional staggering $1.6 trillion over a decade.  If interest rates returned to the record-high levels of the 1980s, the country would pay $6 trillion more in interest alone.

This debt will cause the US dollar to fall.

Here are three steps to take that can protect your investments in this scenario. 

Protection #1: Avoid Too Big to Fail Banks.  When you use a global bank, you are not using just one institution.  You are dealing with a big business that owns multiple banks in different regions.  This has costly implications for how far the bank’s equity goes, and how small safe the particular bank you choose really is.  Plus banks with two or more sub banks have more ways to take advantage of investors.  For example, one division of a bank can be recommending an investment to customers while having another unit in another country sell the investment short.  The bank makes money in three ways: creating the investment, selling the investment to customers and selling it short when the investment implodes.

Use local community banks where you can know your bankers, what they are doing and where their reputations are their most important asset.

Protection #2:  Use Math to Spot Value. 

Whether you like to trade or invest and hold, math based financial information works better than the spin, rumor and conjecture of the daily economic news.   Invest in a diversified portfolio based on fundamental value.  When you do, you’ll be on a solid path to everlasting wealth that is not so easily diverted by the daily drama that seems to be unfolding in the modern world.

For example, our Purposeful investing Course teaches  three mathematically based routines that have been proven to out perform the market over time .

The first routine in the course is the quarterly examination by Keppler Asset Management of 43 equity markets and analysis of their value.  This makes it possible to create a base portfolio of Country ETFs based on basic value.  This passive approach to investing in ETFs is simply to invest in Country ETFs of good value equity markets.

For example, the January 2017 Keppler analysis shows that the “Good Value Developed Market” Portfolio is twice the value of a US market index fund and a much better value than any of the other indices shown.  These are based on the cornerstones of value, price to book, price to earnings and dividend yield (except the European dividend yield).

The Good Value Developed Market Portfolio offers even better value than the Morgan Stanley Capital Index  Emerging Market Index.

keppler

The Spring 2017 Keppler analysis shows that the “Good Value Emerging Markets”

Investing in this broad spectrum of good value does not mean that profits will come over night.  Often markets remain distorted for extended periods of time.

History shows, though, that over the long run, math and value drive the price of markets.

This tactic is a simple, easy and low cost way to diversify in the predictability of good value.

The second tool Pi provides is a way to actively monitor and shift the good value markets using trending and volatility algorithms.  These algorithms allow us to trade good value markets through downtrends and upticks to increase profits in a diversified even more.

The third tool Pi provides is a way to spot ideal position speculations to use sparingly to enhance performance with greater risk.

Protection #3:   Spot Distortions that Create Ideal Condition for Speculation.

Pi teaches the strategy of speculating in metals when when speculative conditions are absolutely ideal.  The Silver Dip relies ion a really simple theory… gold should rise about the same rate as other basic goods and the rise and fall of silver’s and platinum’s price should maintain a parity with gold.

In 2015 Pi recommended speculating in silver because of a dip in the price of silver.   We sent Pi subscribers a report entitled Silver Dip 2015.   That tactic returned 62.48% profit in just nine months.

In 2017 Platinum speculation is even better.

“Silver Dip 2017” has been written and is available to Pi subscribers to show how to determine good value in precious metals and ways to use gold, silver, platinum or other precious metals to spice up returns in safe, diversified stock portfolios.

Here is some history of the Silver Dip strategy.   “The Silver Dip” report of 1986 was the first specific investment report I ever published.  Silver had crashed in 1986, I mean really crashed, from $48 per ounce to $4.85 an ounce.  After I wrote that 1986 report, silver’s price skyrocketed to over $11 an ounce within a year.  The 1986 Silver Dip described how to turn a $12,000 ($18,600) British pound loan (investors only had to put up $250 and no other collateral) into $42,185.

Circumstances relating to precious metals in 2015 were similar to those of 1986.  In May 1986, the dollar pound rate was 1.55 dollars per pound.  The pound then crashed to 1.40 dollars per pound.   The loan could be paid off for $13,285 immediately creating an extra $5,314 profit or total profit of $47,499 in just a year.

Platinum conditions are ideal

Since 2014 the price of platinum has fallen below the price of gold and at the beginning of this year reached a historical low.  The distorted gold platinum spread suggests that platinum is a very good value.

The “Silver Dip 2017” explains how to speculate in platinum plus outlines the following:

  • How to use the Silver Dip strategy in platinum without adding a penny of cash if you already have investments.
  • How to invest as little as a thousand dollars in platinum if you do not have a current investment portfolio.
  • Why this is a speculation, not an investment and who should and should not speculate and how to limit losses and take profits.
  • Three reasons conditions are better for a Platinum Dip now.
  • Three different ways to invest and speculate in gold, silver or platinum in the US or abroad.
  • How to buy gold and silver or platinum with or without dollar leverage margin accounts.

The “Silver Dip 2017” also contains four matrices that calculate profits and losses so investors can determine cut off positions in advance to protect profits and/or losses.  The report also looks at how to switch time horizons for greater safety.

Rising interest rates make the US stock market highly dangerous in the short term. “The Silver Dip 2017” shows how to create a safe, diversified good value stock portfolio and use it to generate much higher returns with a little controlled speculation in platinum.

Learn how to get platinum loans for as low as 1.58%.  See why to beware of  certain brokers and trading platforms, how to choose a good bank or broker and how platinum profits are taxed.

The report includes a complex comparison of gold and silver with other costs of living from 1942 to today to help determine the real value of gold, silver and platinum.

Finally, learn why and how to use advisers to manage profits from the gold and silver dips.

Current circumstances could cause the price of platinum to rise rapidly at any time.  Do not delay reading this report.

The Silver Dip sold for $79 in 1986.  Due to savings created by online publishing (we have eliminated the cost f paper and postage), we are able to offer this report for $39.95.

Order now by clicking here.  Silver Dip 2017  $39.95

Get the Silver Dip 2017 FREE when you subscribe to the Purposeful investing Course.  Act Now.

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking $102 off the subscription.  You also receive the $39.95 report “Silver Dip 2017” FREE.

You also receive FREE

  • The $29.95 report “Three Currency Patterns For 50% Profits or More”
  • The $49 report “How to Grab Sequential Value Profits”.

Triple Guarantee

Enroll in Pi.  Get the first monthly issue of Pi and the three reports right away. 

#1:  I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free purposeful investing.

If you are not totally happy, simply let me know.

#2:  I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.

#3:  You can keep the three reports as my thanks for trying.

You have nothing to lose except the fear.  You gain the ultimate form of financial security as you reduce risk and increase profit potential.

Subscribe to a Pi annual subscription for $197 and receive all the above.

Gary


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