Beware of Tomorrow December 1st


I have sent this message scheduled for tomorrow a day early because for the past 16 years, December 1st has been a significant stock market day!  Our world turned upside down when, on December 1st, 1999 the dot.com bubble burst.  As you will see below it was then not until December 1, 2010 before the Dow was back to that all time high to stay.  Or was it?  Read below:

Stock markets have their ups and downs.  After the dot.com bubble recovered, starting in late 2007, the real estate bubble popped.  Many Americans saw their homes slide underwater, their stocks plummet and the value of their savings collapse to zero return.  That financial ruin was created by banks that were “too big to fail” pushing shares that they were selling short and were poor value.

Now as stock markets reach all time highs, another debacle is rising.  The tremors have already started, aftershocks from 2009, that have potential to create another landslide of a greater magnitude.  The “Too Big to Fail” may be leading us into tragedy again.

A number of readers have been asking me if its time to sell their shares in the US stock market.

First, I remind them that no one can ever get in right at the bottom or sell right at the top, all the time.  Personally I have not been investing in US shares for years and this has served me well.

The great value investor, Benjamin Graham, devised the metaphorical figure “Mr. Market,” whose mood swings — from euphoria to misery — determined stock prices.  You don’t have to trade with Mr. Market when he wants to, but only when you want to.

I don’t want to be buying anything when the sellers are asking for top dollar as they are in the US right now.  I just keep buying into good value markets where there are bargain basement prices.  I do not care about these ups and downs in the US.  Some really good markets (like the UK and China) are selling at near half the price to book of US shares.

Shares represent ownership in real businesses. The real value of those businesses don’t change thousands of times a day.  They don’t suddenly rise dramatically just because of what people think the next President will or will not do.  The price of the shares change, but not the value so sometimes the price is a good value and sometimes not.

Eventually this reality of economic value shows through.  The question is only one of time.

Sticking to the value logic is so much easier to live with than trying to guess if the market will rise more or fall, especially since we are all at risk of a “Behavior Gap”.

The 100 year chart of the Dow Jones Industrial Index below from Macrotrends.net provides a clear warning, “No great crash has started except from an all time high market index”.

stock chart

100 year DJI chart at www.macrotrends.net

Let’s look at a more recent chart to put this in perspective.

December 1, 1999  the Dow Jones Industrial Index (DJI) reached an all time high of 11,497.   Then it fell into the 7000 range by August 2002.  It was not until August 31, 2006, almost seven years later, before it reached that 11,500 level again.

The roller coaster was not at an end.  Then the DJI skyrocketed and reached new highs on December 1, 2007 of 13,500 range.  By February 2009 it was back in the 7,000 range.  It was not until June 30, 2008 that the DJI returned to the 11,500 range.

The roller coaster was still not at an end.  By February 2009, it was back in the low 7000s (7,062).

It took to December 1st, 2010 before it recovered past 11,500 again (11,577).  Eleven years had past and the DJI was at the same level as December 1, 1999.  If you invested in the Dow Jones Industrial index in 1999, then left and did not return until 2010, you broke even.

The time was December 1, 2010 before it reached the 1999, 11,500 level again.  The market continued to rise and by December 1, 2012 was finally back in 13,500 range, five years later before it reached that level again.

stock chart

DJI stock chart at www.finance.yahoo.com

The question though is “How do we do individually as investors?”  Most of us don’t invest and hold for these periods. Most of us sell our winners too soon and hold our losers too long.  This is among the worst times to invest since periods of high performance are always followed by periods of low performance.

For almost ten of the 12 years of 1999 through 2011 the DJI was below the December 1, 199 high.  There were only two years where the DJI was above its 1999 high and if we look from 2007 to 2013, there was only one year where the DJI was above the 2007 high.

In 2013, US stock started to accelerate and for four years we have seen the DJI Index rise above its last all time high in the 13,500 range.   The index is up almost 50% in this period.  We must ask, “Has the real value of these businesses risen that much?” or perhaps the price has outstripped the value.

Perhaps tomorrow, since December 1st seems to be such a pivotal day, we’ll know more or at least in the month ahead.

The question that’s bigger than “how we do?” is “how we feel?”

The behavior gap means most investors get a lower return than indices because the pain of loss is about twice as motivational as the joy of gain.  Most of us are not good at investing.  Human nature seeks pleasure and avoids gain.  Because we are taught from early on that loss is painful, we react poorly when the price of investments drop.  The potential of double pleasure is needed to overcome the fear of pain, so it is natural only after seeing the prices of investments rise for an extended time.

Whatever you do as an investor, seek comfort.  Feeling good about your strategies and tactics is more important than being smart.  Feeling comfortable with your portfolio through its ups and downs is more important than intelligence, capital and access to data.

So next time you are thinking of what to invest in, instead of asking, “Will the market rise or will it fall?” ask  yourself instead, “Will I be comfortable long term with that?”

Gary

This is why we started the Purposeful investing Course (Pi).  Pi shows an easy way to use Country ETFs to invest in good value markets that we can believe in and derive comfort from the safety of the investments.

Gain From Election Volatility

Here we are again… another election on its way… all the robo calls from politicians… the dirty tricks and the innumerable amounts of nonsense this vital process brings.

However America’s politics turn out, one thing is sure.  There will be volatility in stock markets during the election process.

The first reason markets will bounce has nothing to do with politics or policies.   A market correction is due regardless of the party or the person in office.

Second the new politics has created an uncertain era.  Everyone has been shaken over the past three years whether they are pleased with the government or not.

Nothing frightens markets like uncertainty.

Third if we see rising interest rates, this will push markets down.

Despite these pitfalls, there is a way to profit using the strong US dollar and undervalue non dollar stock markets to pick up good value shares.

During nearly five decades of global investing I have noticed found that good value strategies are the best way to profit long term, through good politics 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.

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 plus 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.

Leverage

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).

finance.yahoo.com chart SLV

iShares Silver Trust (symbol SLV) from www.finance.yahoo.com

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 2019” 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 2019 issue has been produced.

“The Silver Dip 2109”  sells for $39.95 but  you receive  “Silver Dip 2019” FREE when you subscribe to Pi.

Save

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 2019” free.

Triple Guarantee

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 2019” 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 2109” report as my thanks for trying.

You have nothing to lose except the fear.   You have the ultimate form of financial security to gain.

Subscribe to the Pi for $197.   You Save $158.95.

Gary