Posted on 26 May 2008.
We had a multi currency and economic review at our latest International Investing and Business Made EZ course here in North Carolina.
Delegates enjoyed a meal in our teaching kitchen.
We had a full house for the course. More and more people are coming because they realize that ways of life, as we know them, are changing forever. Multi currency investing is becoming a necessity.
The course was conducted here at our deep woods seminar hall.
A recent article in USA Today by Sandra Block entitled “The incredible shrinking nest egg” pointed this out.
The article says: “For years, stock investors have been led to expect average annual returns of 8% to 10%. Similarly,many people have assumed that their home would appreciate by roughly 10% a year. Both assumptions, though rest on two decades of outsize returns. Many financial analysts are predicting a prolonged period of below-average returns on both stocks and home equity. Investors who rely on historical returns for the past 50 years will ‘probably overestimate what we’re likely to see in the future,’ says Chris Jones, chief investment officer for Financial Engines, a retirement-plan consultant. “
At the multi currency sessions in the course, we showed delegates why upcoming change makes this article right and wrong. More importantly we showed delegates how to react to the change so that the shifts can rig extra safety, security and profit.
Here are a few points that delegates learned that shows why this is a bad and good time.
First, as far as stock markets go, this correction is understandable and was expected. Messages at this site warned about it for months before it took place last year.
* Returns in equity markets had been phenomenal from 2003 to 2007. A correction was expected if for no other reason times of good performance are always followed by times of low performance.
* The most important demographic of the economic world has not changed.
There are still increasing numbers of people producing and consuming more in more efficient ways.
* The previous equity growth was not a bubble. High GDP Growth and falling interest rates plus earnings explained more than 100% of global equity returns over those four years.
There has not been a general expansion of P/E multiples. Equities were not expensive when the correction began last November. P/E ratios were about the same at 15 times earnings, about as 1987 when a huge rise in markets though 1999 drove P/E ratios to 25.
During breaks delegates ambled in these woods.
* We should expect 7% to 10% annual return in the stock market as a function of global nominal GDP growth and long term earnings growth plus risk premium.
* Periods of low growth are followed by periods of high growth. This is the time to accumulate shares.
* Inexpensive equities in quality companies that pay a reasonable return are better investments now than they were six months ago..
This means that the comment in the USA Today article, “we will see a prolonged period of below-average returns on both stocks and home equity.” is most likely wrong. This is especially likely because governments have reduced interest rates and flooded markets with liquidity.
Therefore the 11 steps of dealing with a purported economic crisis remain.
#1: Do not worry too much about short term noise.
#2: Do not worry too much about day to day volatility.
#3: Turn on the auto pilot and normally add to your position.
#4: Do not panic.
#5: Do not let feelings influence you too much.
#6: Do not count on extra ordinary returns. Be realistic.
#7: Expect change.
#8: Do not underexpose yourself for the long term.
#9: Embrace risk.
#10: Sell your losers and let your winners run.
#11: Add some restructuring stories to your portfolio.
Yet the same liquidity that will kick start the stock market and economies out of the doldrums will probably make another comment in the USA Today article true:
“Investors who rely on historical returns for the past 50 years will ‘probably overestimate what we’re likely to see in the future’.
This is because liquidity and stock markets and real estate markets will rise, but the US dollar will lose even more purchasing power.
To beat this loss of dollar power, one must invest in equities, real estate and/or commodities. Yet this may not be enough. We’ll also need to invest in these three inflation fighting investments in new avenues and in different ways.
Future messages will look at how and where.
During the course Thomas Fischer introduced Jyske Bank’s new JGAM investment management service for US investors.
The three fundamental investment ideals that form the core of investing remain.
Learn more about multi currency investing at our multi currency portfolio course.
Learn more about fighting inflation with Ecuador real estate and our Ecuador Living Service
Until then, good global investing to you.
Gain From the Volatility of the Next Four Years
However America’s politics turn out, one thing is sure. There will be volatility in stock markets during the next four years.
The first reason markets will bounce has nothing to do with politics or policies. The market’s downward shift is simply due regardless of the party or the person in office.
Second the new politics will create an uncertain era. Everyone is shaken whether they are pleased with the election or not and nothing frightens markets like uncertainty.
Third we’ll see rising interest rates over the next 48 months. This will push markets down.
Despite these pitfalls, there is a way to profit using the downtrends to pick up good value shares.
During nearly five decades of global investing I have noticed found that good value strategies increase through bull markets and bear, through good presidents and bad. The steps to take are simple.
The first tactic is to seek safety before profit.
We can look at Warren Buffett’s investing strategy as an example. Buffett success is talked about a lot, but rarely does anyone explain how he make so much money. That was the fact until some researchers really stripped his operation bare. They looked at everything and learned the deepest of Buffett’s wealth management secrets. Fortunately they published all in a research paper at Yale University’s website. that reveals important truths about extending wealth.
This research shows that the stocks Buffett chooses are safe (with low beta and low volatility), cheap (value stocks with low price – to – book ratios), and high quality (stocks of companies that are profitable, stable, growing, and with high payout ratios).
The second tactic is to maintain staying power. At times Buffet’s portfolio has fallen, but he has been willing and able to wait long periods for the value to reveal itself and prices to recover.
This chart based on a 45 year portfolio study shows that holding a diversified good value portfolio (based on a good value strategy) for 13 month’s time, increases the probability of outperformance to 70%. However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%. Time is your friend when you use a good value strategy. The longer you can hold onto a well balanced good value portfolio the better the odds of outstanding success.
The Buffett strategy integrates time and value for safety and profit.
A third tactic is using limited leveraging, tactic in the strategy boosts profit. Buffett leverages his portfolio at a ratio of approximately 1.6 to 1. The Yale published research paper shows the leveraging methods used by Warren Buffett to amass his $50 billion fortune. The researchers found that the returns from Buffett’s investment company, Berkshire Hathaway, far outweighed those achieved by any rival that has operated for 30 years or more. The research shows that neither luck nor magic are involved. Instead, the paper shows that Buffet’s success hinges on using leverage at the rate of 1.6.
To sum up the strategy, Buffet uses limited leverage to invest in large purchases of “cheap, safe, quality stocks”. He limits leverage so he can hold on for very long periods of time, surviving rough periods where others might have been forced into a fire sale or a career shift.
Stated in another way buffet uses logic (buy good value) to have the conviction, wherewithal, and skill to invest with leverage over many decades.
What do we do when we are not Warren Buffett?
May I introduce the Purposeful Investing Course (Pi) for those who want to invest like Warren Buffet, but know they are not. This course is based on my 50 (almost) years of investing experience combined with wisdom gained from some of the world’s best investment managers and economic mathematical scientists.
Enjoy Extending Wealth
Pi’s mission is to make it easy for anyone to create a three point strategy, like Buffett’s even though they do not have a lot of time for or knowledge about investing.
Pi reveals investing secrets and the sciences that make investing easy, safer, less time consuming and increases the chances of profit.
One secret is to invest with a purpose beyond the cash. One tactic as mentioned is staying power. This means not being caught short and having to sell during a period of loss. This also means having enough faith in a strategy that we stick to the plan. When we invest with purpose, doing what we love, we enjoy the process more and are more likely to hold on during down times, when most poor investors panic and sell.
Slow, Worry Free, Good Value Investing
Stress, worry and fear are three of an investor’s worst enemies. They create the Behavior Gap, a trait exhibited by most investors, that causes them to underperform any market sector they choose. The behavior gap is created by natural human responses to fear. Pi helps create profitable strategies that avoid losses from this gap.
Spanning the Behavior Gap
Behavior gaps are among the biggest reasons why so many investors fail. Human evolution makes fear the second most powerful motivator. (Greed is the third.) Fear creates investment losses due to behavior gaps. Fear motivates us more strongly than desire. By nature investors are risk adverse.
Winning investors though embrace risk because they have a plan based on good value.
Purpose is the most powerful motivator, stronger than fear and greed, so a strategy with purpose is the most powerful of all.
Combine your needs and capabilities with good value secrets and the math to back up your value selections through the Pifolio – The Pi Model Portfolio
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 (often created by someone with vested interests) and is based entirely on good math.
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 follow this research of a brilliant mathematician and have tracked this analysis for over 20 years. This is a complete and continual study of international major and emerging stock markets.
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 matches this mathematical certainty with my fifty years of experience. This 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. There is so much more to write and 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.
Pi also explains when leverage provides extra potential without undo risk. For example in 1986 I issued a report called “The Silver Dip” that showed how to borrow 12,000 British pounds (at almost 1.6 to 1 dollars per pound the loan created US$18,600) and use the loan to buy 3835 ounces of silver at around US$4.85 an ounce.
Silver had crashed, I mean really crashed from $48 per ounce. As prices decreased from early 1983 into 1986, total supply had fallen to 449.7 million ounces in 1986. Mine production was restricted by the low prices at this time, with silver reaching a low for this period of $4.85 in May 1986. Secondary recovery also was constricted by these low prices.
Then silver’s price skyrocketed to over $11 an ounce within a year. The $18,600 loan was now worth $42,185.
The loan was in pounds and in May 1986 the dollar pound rate was 1.55 dollars per pound. So the 12,000 pound loan purchased $18,600 of silver. The pound then crashed to 1.40 dollars per silver. The loan could be paid off for $13,285 immediately creating an extra $5,314 profit. The profit grew to $47,499 in just a year.
Conditions for the silver dip have returned. The availability of low cost loans and silver are at an all time low. The price of silver has crashed from nearly $50 an ounce to below $14 as did shares of the iShares Silver ETF (SLV).
(Click on chart from Google.com (1) to enlarge.) Imagine investing in a spike like this… with leverage!
At the same time the silver gold ratio hit 80, a strong sign to invest in precious metals.
I have updated a special report “Silver Dip 2016” 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 gained through 30 years of speculating and investing in precious metals. While working on the report, when the gold silver ratio slipped to 80 and the price of silver dropped below $14 an ounce, I knew I needed to share this immediately.
I released a new report “Silver Dip 2015” so readers were able to take advantage of these conditions and leverage 1.6 times as a speculation. That report generated profits as high as 212% and a revised 2017 issue has been produced.
“The Silver Dip 2106” sells for $39.95 but you receive “Silver Dip 2017” FREE when you subscribe to Pi.
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 the $29.95 report “Three Currency Patterns For 50% Profits or More” and the $39.95 report “The Silver Dip 2017 free.
Enroll in Pi. Get the first monthly issue of Pi, and the report “Three Currency Patterns For 50% Profits or More” and “The Silver Dip 2016” 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 “The Silver Dip 2106” report as my thanks for trying.
You have nothing to lose except the fear. You have the ultimate form of financial security to gain.
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