Such corrections are generally not gentle. Some negative event: economic, military or political can act as a trigger. Though the event is fundamentally not very important, the fear it creates is. That fear can set off a secondary wave of computer driven programs that accelerates the fear. The crash then spirals into a rout.
Millions could see their savings wiped out but panicked markets create value and make fortunes for those who are calm despite the bad news. These downturns are the best times to make good investments.
How can we stay calm?
Our recent message “Anger – Cost Vs Value (1) explains that anger and fear are created by an asymmetric left side cerebral response (the left side of the brain taking over) which takes over in a fight or flight response. One sided brain thinking throws us out of balance and can muddy our thoughts. We make wrong decisions in many parts of our lives including investing.
That article showed that being in nature helps balance left and right brain activity so we think more clearly and can focus on productive rather than destructive solutions to change. But we can’t always get out and walk in the woods. Since we can’t always just drop everything and go for a stroll, we need other ways to balance our brain so we can gain the benefit of whole, left and right brain thinking.
“Listening to music lights up the whole brain” (2)
That’s the title of a Science Daily article that tells how Finnish researchers developed a new way to study how the brain processes different aspects of music-such as rhythm, tonality and timbre (sound color) in a realistic listening situation. The results show for the first time that musical features activate emotional, motor and creative areas of the brain.
Another article at NPR.org “The Power of Music” (3) reviews the book with this title. Science all but confirms that humans are hard-wired to respond to music. Studies also suggest that someday music may even help patients heal from Parkinson’s disease or a stroke. The author, Elena Mannes, tracked the human relationship with music over the course of a life span. Her studies found that infants even just a few weeks old react to some of the basic intervals common to Western music.
She also shows how scientists have found that music stimulates more parts of the brain than any other human function.
Music can help make our brain whole and more effective. Though we cannot control the news, we can control the music.
History suggests that Nero played his fiddle while Rome burned. This is a story that shows we should not do something trivial and irresponsible in the midst of an emergency! Nero may have been a poor decadent leader, but he was at least correct, listening to music when there was panic. Had he used that calm to act, who knows, we might be speaking Latin now.
Join Merri and me this year learn how to combine music and mathematics to find good value in investing and business to protect and increase income and savings.
Why Investing is StickyHave you ever felt that making investment decisions is like swimming in syrup?
This syrup is a sign of hidden inflation. Cracker Barrel syrup used to be 100% pure maple syrup. Now 45% of the ingredients is cane syrup but the price of breakfast has not dropped.
See how bad thinking caused me to miss nearly $200,000 of profit I encountered one May.
May 2016 is my 50th anniversary of being in the investment & finance business. This is the 48th year since I started talking about international investing, (I started a Hong Kong mutual fund business in May 1968).
Since that time, my investing goals have been based around spotting contrasts and trends. For example, one trend I spotted one May many years ago is how trading down hides real inflation. Air tickets cost the same but seats are smaller and luggage not included. Coffee is no longer included free with a restaurant breakfast. There are many little examples of how our lifestyles are diluted such as the reduction of maple in Cracker Barrel syrup.
Once we spot a contrast or a trend, we need a strategy to take advantage of what we see. This is where most investors (including yours truly) can get it wrong.
A perfect example of my wrong thinking was when I gave up nearly $200,000 when looking at shares of Cracker Barrel Old Country Store, Inc. This company started in Tennessee in 1969, operating restaurants combined with gift stores based on a traditional Southern cuisine and theme. The decor is designed to resemble an old-fashioned general store. The restaurant/stores began on or near Interstate highways in the Southeastern US. There are now more than 630 stores in 42 states.
Since the early 1990s, every May, Merri and I have driven up the East coast of the US headed for our home in the North Carolina mountains. On those trips we would stop at Cracker Barrel because they offered books on CD (formerly CD tapes). We would buy a story and listen on the day long drive north.
In May 1993 I noted that these Cracker Barrel stores were exceptionally busy. “Hmmm,” I thought, “maybe I should invest in some Cracker Barrel shares”. I checked them out thinking I might plunk $50,000 into the Cracker Barrel. I looked. The price was $32.75 a share. “Nope,” I decided. “These shares have already risen too much. The profit potential is gone.”
The shares had been $13.56 two years earlier in May 1991. The price had nearly tripled. I thought I had missed the golden opportunity. As the chart below shows the share price has since risen five times to $150 a share. Had I invested that $50,000 it would be almost a quarter million today. The share price has outperformed the NASDAQ index (the red line in the chart), plus the company has paid a multitude of dividends (the blue diamonds on the bottom of the chart).
Click on chart from www.finance.yahoo.com to enlarge.
But did I give up almost $200,000 in profit? Or did I save $35,000?
The difference is simply time. Had I invested in May 1993 at $32.75 and held the shares for 23 years I would have made alms $200,000 of capital appreciation.
Chances are, however, I would have shortened my time dimensions and lost. Those $32.75 shares dropped to $24.38 by May 1998. Back then, I invested on economic news. My thinking would have been, “Yikes, I have lost almost half my investment”. Maybe I would have held in 1998 because the NADAQ Index was bubbling up then. Maybe not, but by February 2000 the NASDAQ Index had collapsed and Cracker Barrel shares had dropped to $10. “Oh No, I would have lost two thirds of my investment!” I am pretty sure I would have bailed by then taking as much as a $35,000 loss.
What was the difference between a $35,000 loss and a $200,000 profit? A strategy and 16 years.
How can we know when to hold a share or cut our loss? The answer is “Have a value based mathematically driven strategy”.
The first step is to each understand our own unique time horizon. This can be minutes and seconds (if we wish to trade) or decades. The horizon does not matter. Having a strategy that suits our individual circumstances and having tactics that adhere faithfully to the strategy are everything.
My strategy is based on a long time strategy using mathematically driven perspectives. The core of my strategy suggests the US stock market will contract soon. The uptick on Wall Street for the last seven years has simply been the last wave of a much longer downward trend. The market has risen but when you look at numbers instead of media guesswork, the facts are pretty easy to see.
The Dow took 18 years from 1926 to 1944 to re-achieve its high point hit in 1926. Then there was a 22 year real bull market until 1966. The Dow hit a new highest peak every long term upswing. A bear started in 1966. It took the Dow another 18 years (1984) to re-achieve its 1966 high. That too was followed by an amazing 17 year bull market, followed by the 2000 market collapse. US stocks have been in a bear trend since.
Click on chart to enlarge.
You may be thinking, “It looks like the Dow shot well past its peak of 2000”.
Did it? If interest rates had not been ground down to almost zero, would there be so much pressure in the stock market now?
If the US dollar had not been rising and European interest rates even below zero,would there be so much buying pressure on US shares?
If we look at the valuations of US shares compared to European shares, we see that Wall Street is dramatically overpriced in every fundamental way. The Morgan Stanley MSCI Index USA currently sells for 2.81 times book value, compared to the MSCI Europe Index that sells for 1.68 times book value. The US PE Ratio is 21.2 versus 18.2 in Europe and the average US dividend yield is 2.15% versus 3.69% in Europe. Shares in Europe on average are a far a better value.
When you use a long time dimension and diversify correctly, value always comes through.
I use this strategy because it takes the least work and has the lowest stress! Look at the benefits you gain from this 30 year perspective. While most of the market worries about the end of a non existent bull, you are waiting for the real bear to end. While most investors worry about the next bear, you can’t wait for the upcoming bull. The 30 year long term perspective gives you a contrarian view, and contrarians almost always have the best results when investing.
We can also gain short term profits from watching long term trends.
For example, last September 2015 I spotted two distortions. They were just like contrasts that had reaped huge rewards for me and many of my readers 30 years ago. I quickly issued two reports, one for each trend. Just six months have passed. One of the distortions has already returned 62.48%. Both contrasts have even more potential in 2016.
One of the reports released last September, “Silver Dip 2015” looked at potential profits in silver because when the US stock market falls, the price of gold and silver rise. I have been a gold bug for almost 50 years and spotted this fact long ago.
The “Silver Dip 2016” report reviews a way to profit from silver and gold because of a mathematical, historical fact. When the silver/gold ratio rises over 80, silver is more likely to rise than gold. That ratio is even higher now than it was in 2015 but gold also makes good sense as a speculation now.
The second distortion, explained below, has greater long term potential and all but guarantees short term profits in gold and silver.
There is no question that a correction is coming. Only the full timing can be in doubt. The question we must ask is, “Could the big break come in 2016 and could it break upon us right now?” The answer is “Yes”. When the bubble bursts, it can cause the perfect economic storm that makes a few investors, who are ready, rich.
I have been warning readers about this stock market correction (and how to profit instead of lose), since January 28, 2015.
There are numerous indicators.
Zero interest is the first sucker punch in a one-two-three combination that can devastate millions of investors. This is a Ponzi scheme where governments rob money from the future and spend it badly in the here and now. Each downward economic wave of the last 30 years has created a larger mountain of debt that brings the world closer to an economy where there is no more future money to steal. The only way governments can afford to borrow more is to take it for nothing. That’s zero interest. In worst case scenarios, governments can charge you to borrow your own money. In Europe some bonds now have negative interest.
Next an IMF led second punch, is a most damaging regulation adding fuel to the fire of disaster. This regulation allows governments to decide where and when we can spend and invest our personal money.
The leaders of the IMF have been saying that global investing freedom is not always good and is especially wrong in a crisis. Recently the current IMF Managing Director, Christine Lagarde, stated the governments realized there is a short-term nature and inherent volatility when investors have the freedom to invest where they choose. Her exact words were “Freedom of investing of global capital flows are problematic.” My translation is “Big Sister thinks she knows how to spend my money better than I do”.
Such thinking is permeating governments. The Governor of the Bank of Japan, for example, suggested that China might benefit from stricter capital controls. The “more government control” thinking is spreading. India has tightened restrictions on its citizens’ access to foreign currency. Simply put, the Indian government forces its citizens to keep more of their money in India. That’s two of the three largest economies in the world already regulating where their citizens can invest.
The US is also under attack. Ms. Lagarde of the IMF stated that countries such as the U.S. should consider new regulations and tax policies that curb short-term debt flows and stimulate longer-term equity investments.
The IMF has been endorsing and even recommending the use of monetary controls in some cases to slow destabilizing inflows of investment. What that means is governments, not the market, should decide when we can cash in on successful investments and governments should decide if we can move our profits and investments back or not.
Such thinking completes the second sucker punch that rips at the purchasing power of our savings and wealth.
We all work hard to earn. We sacrifice to save, so we can put capital to work for a better life better…or maybe to retire. Then the government decides that our capital shouldn’t pay us anything. Even worse they could charge a negative interest rate on our bank accounts and lock our money into the system. The alternative is to invest in a risky, over priced stock market and morbidly weak currency.
Over priced stocks and an over priced US dollar are the third sucker punch!
To date we have been able at least to choose where and in what currencies we invest. This is where we encounter the one-two-three punch. The zero or negative interest rate destroys the purchasing power of our savings. Capital controls lock us into a weak currency or market so we cannot take profits or protect our purchasing power from this inflation and currency loss.
Our savings, pensions and wealth can be floored by a combination of a falling stock market, crashing US dollar and inflation.
The purchasing power of the US dollar will fall. Trading down is working in many ways. Even if pensions can pay what they have promised, the money in dollars won’t buy as much. Coffee isn’t free with meals. Many ordinary foods (tomatoes, peppers, almonds and walnuts as an example) and yes, maple syrup become luxuries.
Social Security won’t be as useful either, if it is paid at all. Could Social Security really default? The answer is “Yes, it could”. An October 8, 2013 Reuters article at finance.yahoo said: “President Barack Obama warned last week that Social Security benefits might not go out ‘on time’ if Congress does not raise the debt ceiling. Should seniors and disabled Americans really be worried about their benefits if the U.S. government runs out of borrowing capacity later this month? The answer is YES.”
I can make these predictions based on 30 year trends because I have been writing and teaching global investing for almost 50 years. Long term experience helps me spot distortions and cycles that have been building for even as long as 30 years. This experience has helped me steer my readers in the right direction again and again.
I invite you to join me and a small selective group who for the next year will participate in an intensive program called the Purposeful investing Course (Pi). The purpose of Pi is finding value to protect our savings, pensions, income and wealth from these two devastating economic conditions.
I’ve been watching this 30 year distortion take shape and believe that 2016 could very well be the year of a huge shift.
Slow, Worry Free, Good Value Investing
Stress, worry and fear are three of an investor’s worst enemies. They create a Behavior Gap, that causes investors to underperform in any market good or bad. The behavior gap is created by natural human responses to fear. Pi helps create profitable strategies that avoid losses from this gap.
Lessons from Pi are based on the creation and management of a Primary Pi Model Portfolio, called the Pifolio. There are no secrets about this portfolio except that it ignores the stories from economic news (often created by someone with vested interests) and is based mainly on good math that reveals the truth through financial news.
The Pifolio is a theoretical portfolio of MSCI Country Benchmark Index ETFs that cover all the good value markets using my (almost) 50 years of global experience and my study of the analysis of four mathematical investing geniuses (and friends).
The Pifolio analysis begins with a continual research of international major stock markets that compares their value based on:
#1: Current book to price
#2: Cash flow to price
#3: Earnings to price
#4: Average dividend yield
#5: Return on equity
#6: Cash flow return
#7: Market history
We combine the research of several brilliant mathematicians and money managers with my years of investing experience.
This is a complete and continual study of what to do about the movement of international major and emerging stock markets. I want to share this study throughout 2016 into 2017 with you.
This analysis forms the basis of a Good Value Stock Market Strategy. The analysis is rational, mathematical and does not worry about short term ups and downs. This strategy is easy for anyone to follow and use. Pi reveals the best value markets and provides contacts to managers and analysts and Country Index ETFs so almost anyone can create and follow their own strategy.
A country ETF provides diversification and cost efficiency by spreading one simple, even small investment into a basket of equities in a good value stock market. The costs are low and this type of ETF is one of the hardest for institutions to cheat. Expense ratios for most ETFs are lower than those of the average mutual fund.
Little knowledge, time, management or guesswork are required. The investment is simply a diversified portfolio of good value indices. Investments in an index are like investments in all the shares of a good value market.
Pi opens insights to numerous long term cycles that most investors miss because they have not been investing long enough to see them.
For example, in the 1980s, a remarkable set of two economic circumstances helped anyone who spotted them become remarkably rich. Some of my readers made enough to retire. Others picked up 50% currency gains. Then the cycle ended. Warren Buffett explained the importance of this ending in a 1999 Fortune magazine interview. He said: Let me summarize what I’ve been saying about the stock market: I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like—anything like—they’ve performed in the past 17!
I did well then, but always thought, “I should have invested more!” Now those circumstances have come together and I am investing in them again.
The circumstances that created fortunes 30 years ago were an overvalued US market (compared to global markets) and an overvalued US dollar. The two conditions are in place again! There are currently ten good value (non US) developed markets, plus 10 good value emerging markets.
Pi shows how to easily create a diversified, worry free portfolio in some of these good value markets using Country Index ETFs.
The current strength of the US dollar is a second remarkable similarity to 30 years ago. The dollar rose along with Wall Street. Profits came quickly over three years. Then the dollar dropped like a stone, by 51% in just two years. A repeat of this pattern is growing and could create up to 50% extra profit if we start using strong dollars to accumulate good value stock market ETFs in other currencies.
This is the most exciting opportunity I have seen since we started sending our reports on international investing ideas more than three decades ago. The trends are so clear that I have created a short, but powerful report “Three Currency Patterns for 50% Profits or More.” This report shows how to earn an extra 50% from currency shifts with even small investments. I kept the report short and simple, but included links to 153 pages of Good Value Stock Market research and Asset Allocation Analysis.
The report shows 20 good value investments and a really powerful tactic that shows the most effective and least expensive way to accumulate these bargains in large or even very small amounts (less than $5,000). There is extra profit potential of at least 50% so the report is worth a lot.
This report sells for $29.95 but you’ll receive the report, “Three Currency Patterns For 50% Profits or More” FREE when you subscribe to Pi.
Plus get the $27 report, “The Silver Dip” free.
With investors watching global stock markets bounce up and down, many missed two really important profit generating events. The price of silver dipped below $14 an ounce as did shares of the iShares Silver ETF (SLV). The second event is that the silver gold ratio hit 80 and has remained near this level, compared to a range of the 230s only two years ago.
These two events are a strong sign to invest in precious metals.
I prepared a special report “Silver Dip 2015” about a leveraged silver speculation that can increase the returns in a safe portfolio by as much as eight times. The purpose of the report is to share long term lessons about speculating in precious metals gained through 30 years of speculating and investing in gold and silver.
The low price of silver offers special value now so I want to send you this report because the “Silver Dip 2015” offers enormous profit potential in 2016.
Save $428.95 If You 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. Plus you receive FREE the $29.95 report “Three Currency Patterns For 50% Profits or More”, the $27 report “Silver Dip 2015” and our latest $297 online Value Investing Seminar for a total savings of $428.95.
Enroll in Pi. Get the first monthly issue of Pi and the report “Three Currency Patterns For 50% Profits or More” and the online Value Investing Seminar 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: I guarantee you can keep “Three Currency Patterns for 50% Profits or More” and “Silver Dip 2015” plus the Value Investing Seminar 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.