VN:F [1.9.16_1159]
Rating: 0.0/5 (0 votes cast)

Think Twice Before Reading

This page is not for the amateur.  I spend a lot of time and resources in learning what can go wrong. And if you are not willing to spend a few thousand hours then stop right here!

This article first presents a case for contrarian thinking.  Then how to and where to invest and discusses about method for growing your investment.  Finally, we are reminding that all value of all investments go up and down over time.  I say this because most people who really are good investors may not tell you and those that tell you and write books may not be successful, otherwise they would not be writing books and would be investing.

Marc Faber wrote an article called “Why Are Most Investors Mostly Wrong
Most of the Time?” He mentions a Dalbar research report that study the performance of individual investors. According to Dalbar, from 1984 to 2000, when the S&P 500 was compounding at 16.3% per annum, the average US equity mutual fund investor achieved a return of only 5.23% per annum. The average fixed income investor did not do much better, with an annualized return of 6%, compared with 11.83% for the long term government bond index.  Dalbar calculated that $100,000 invested in the S&P 500 in 1984 would have been worth $1,301,000 at the end of 2000, whereas the average stock investor’s $100,000 was actually worth only $241,000.  So in the best of times, the individual investor is not doing best and in bad times it is doing worst.

Dalbar also noted that individuals tended to sell at the bottom and buy at the peak of market fluctuations!  Most investor tends do have poor timing.  They invest at the top of the market and get caught with a losing asset.  Then they panic at the bottom and sell out watching prices rise.

Consumer Confidence 1995-2009

Dow Transport 1990-2010

Notice that in 1999, the Transportation Index started to falter giving early indication that the transportation of products was beginning to slow down.  However, Consumer Confidence was still going higher and higher until prices dropped and did not stop dropping to the minimum until after late 2003 while the Transportation Index signalled a recovery in late 2002 and early 2003.  It can be seen here that most investor would sell out their equities at the bottom while prices would recover.  The same happen in 2006 in the Transportation at the peak while the consumer went past to 2008 and dropped to end of 2009 (as of this writing), while prices went up since March 2009.  (As of 11-2009, we do not believe the economy is recovered since the unemployment rate is still above 10%.  Yet many investment advisors are advertising for great growths nearby).

It is also good time to also mention that there is not timing relationship between the economy and business and the equity markets.  What must be said at this time is that while the economy and business is governed by the laws of supply and demand, the markets are governed by the laws of emotions.  Greed and Fear ultimately!  Thus a study of human psychology is more appropriate than economics.

The emotions and perceptions of the economy and businesses affect the confidence or lack of of the investor at large.

VIX vs SPX 2004-2009

VIX vs SPX 2004-2009 (2)

Why Investing

The world cannot function and you cannot live without money.  The only question is how to make the most. This Page is about how to maximize your capital through investments.

Why Money – The Role of Money

Having been brought up in a highly religious school, the Bible and especially New Testament had many parables that talks against the accumulation of wealth.  For example, phrases like “the rich cannot enter the gate of heaven”.  So although I was from a business family, school was every day for 17 years telling me that I was not going to heaven if I accumulated money.  Later I realized 3 key things that changed my mind:

  1. The world works around money and capital, it always has and always will as far back as I could research.  Before the roman empire. See Fig 1 below.
  2. What ever little or more you make it depreciates over time.  Sometimes slows down the rate of depreciation but on the average inflation reduces your purchasing power sooner or later it does.  If you have $1,000 today, in 20 years I guarantee you it will be worth a lot less. (See Fig 2 – and see how the US Dollar has depreciated over the last 50 years).  So, the moral of this is make more just to keep pace.
  3. Money contrary to what some religion tells you, is not bad nor is good.  It is certainly necessary but it is what I call an amplifier or an enhancer.  For a good person with good causes, money allows you to do more good things.  For a bad person, that’s another story.
  4. Lastly, and not part of the 3 keys I mention, Money allows you to deter problems.  In a nation with envious people and many laws, money can pay for lawyers to keep others to come after you.  So is a deterrent and give you piece of mind.

I had to get that out of the way because otherwise you’d say money drives my thinking and my life.  It does not, the role of money is very clear.  It is an important tool in life.  So learn more about it and how to make a lot of it!  That is why I am writing this Page.

500bc-3000ad SuperCycle Chart

US Dollar Purchasing Power 1900-2009

My mother used to tell me 10 cents in her youth (1940’s) could buy a good meal.

According to Rich Dad Poor Dad, first you must learn how to work for money (either by working at a job or in business for yourself).  Then you need to learn how to let money work for you.  That is what investment is.  And free you up from your precious time to do things that are more valuable to fulfill your destiny.

Start thinking in terms of Gold.  Gold value has not changed since time immemorial.  All paper currencies are design to depreciate.  That is what the above Purchasing Power of the Consumer Dollar chart tells us. See the next one and you will understand more the role of Gold.

When To Invest

The earlier the better.  If you invest $10,000 every year with as slow as a 5% compounded return when you are 20 years of age, when you get to 40 years you already can retire without working and have a great life.  Needless to say if you invest $100,000 every year with a 30% compounded annual return, a lot of interesting numbers come up.  So starting early is important but if you starting later then you have to work harder.  Either invest more or increase your rate of return.

How To Invest

Buy and Hold? No!  At least no on depending on what to hold.  Stocks are most speculative and risky during inflationary and high interest rates economies.  Commodity and hard assets do well during inflationary cycles. Real estate and gold and art can do well in many longer term cases.  See below.

Words of Wisdom:

Jim Rogers – Watch out for parabolic moves.  All parabolic moves end with a crash.

The information and material in this page is provided solely for educational purposes and not to be used for investing purposes.  It is also the opinion of the author and does not constituted accuracy or possibility for misunderstanding by the reader.  The reader should derive its own conclusion and consult an expert in the subject before taking any action as a result of the information provided here. The author is doing so for personal archiving purposes.  If you find this information to be offensive or incorrect please let us know.