Archive for August, 2006
August 30, 2006 -
There are no greater flawed investment strategies than those pushed by 99% of investment firms all over the world. This is why most individual investors have no idea what returns they should really expect from their portfolios – because it’s certainly not the 6% to 8% annual returns you’ve been led to believe.
To illustrate this point, let me tell you a story.
I remember having an interview once with a nationally recognized investment firm in the U.S. located in California with over $20 billion of assets under management. During the course of my interview, I gave my interviewer answers that he did not want to hear. For example, he thought that by asking me where the Dow was that day, that that tested my knowledge of the stock market. I answered I don’t know and I don’t care because it’s irrelevant. I then politely responded with, “Can you please tell me where the London Stock Exchange is trading at today? Can you tell me where the SET at Thailand closed yesterday? Can you tell me where the Nikkei 225 closed at today? And, Can you tell me where the TSX in Canada is currently at?”
I asked him those questions to make my point that big investment firms such as his were dinosaurs. Firms that claimed to be revolutionary and creative (I believe their website used those words or similar words to describe themselves) but yet were bogged down in statistics and other things that would never help a single soul discover a phenomenal stock opportunity.
Read more …
August 30th, 2006
August 26, 2006 -
Are you tired of always hearing that the smartest way to invest money in the stock market is to buy an index fund when you know that other people consistently beat the S&P 500 and other major index funds of other global stock markets? Everyday, I see articles online by people with all these fancy letters next to their name - PhDs, MBAs, and CFPs - who claim that they’ve conducted numerous studies to prove that you just can’t beat the major global stock market indexes.
As an insider at two of the largest financial firms in the U.S. for seven years, I know that this is a bunch of bull. Most of the things I consistently read about stock investing in the major media are just not true. People merely chew, regurgitate and spit out the same things they’ve heard in the past because they sound good without ever taking the time to truly dig down the rabbit hole to discover if there is really any truth to them.
Read more …
August 26th, 2006
August 24, 2006 -
The first task of becoming wealthy is to shed yourself of almost all of the beliefs surrounding investing that you’ve been taught. Most people, no matter where they are educated, go through their educational life learning to become robots whether they realize it or not. The “authority” figure tells them that A+B= D and if the student disagrees and argues that A+B = E , then he or she is given a less than satisfactory grade. So students spit back what the teachers tell them to think, they receive good grades, and the reward for good grades is a good job. But in the process, all remnants of any critical thinking ability are destroyed.
The financial elites throughout history have always sought to control the financial non-elites to retain their power. They accomplish this goal not only through the obvious - by controlling the global money supply, but also through the subtle- by controlling the educational process. In reference to the former, Mayer Amschel Rothschild, a patriarch of one of the wealthiest families in the world and a member of one of the most influential banking families in history, once said “Give me control of a nation’s money and I care not who makes her laws.”
Control the Money Supply & You Control the People
American elites realized this as well.
Read more …
August 24th, 2006
August 22, 2006 -
Ever wondered if you’d be better off with an independent financial consultant or investing your stocks yourself than with a huge investment firm? To understand the answer to this question you must first be able to separate investment fiction from investment fact.
The key to sorting through all the “noise” that investment firms and financial consultants throw at you is to be able to deconstruct the myths they propagate. What is ultimately so confusing about working with big investment houses is that they combine fact and fiction into a top-notch convincing marketing campaign to get you to turn over your dollars to them.
For example, let’s consider the often repeated investment firm strategy of being fully invested. Though being in cash is most definitely good at times, no matter if global markets are up or down, there is still money to be made somewhere, whether in put options, investing in non-stock assets, or by investing in other parts of the world. However, I do have a problem with the way Wall Street firms use fear to achieve this. Let’s re-visit the commonly quoted “fact” that:
“If you had missed the best 90 performance days in [the U.S. stock] markets from 1963 to 1993 your average annual return would have dramatically fallen from 11.83% to 3.28% a year.” (Source: University of Michigan)
If we were to analyze this statement, then it is quite reasonable to analyze the assumptions behind this statement. Is it truly realistic to think that anybody’s luck would be so bad as to miss the best 90 days over 30 years even if they chose to be in and out of the market at certain times. What are the chances that they would miss all 90 of the best performing days? One in a 580 million?
Read more …
August 22nd, 2006
August 20, 2006 -
When I was young and foolish, I used to speculate a lot, sure that my next speculation would pay for my next vacation in Tahiti. And I made some big mistakes with my money ten years ago because of that. There’s a difference between smart speculation and dumb speculation. And i wasn’t even engaging in the smart variety back then. I was engaging in the brash, I can’t miss though I missed the last three times kind of speculation.
Speculation may reward you with lots of money but speculation more likely will cause you to engage in dumber speculation and seek out the black jack tables at Las Vegas trying to recoup that money that you lost by being so stupid the first time around.
For example, there have been many Russian stocks that have returned 100%, 300%, 600%, and even more than a 1000% in just the last one or two years. Yet even though I’ve been very aware of these stocks I have yet to take the plunge. And even with Rosneft’s recent IPO, I still may sit on the sidelines.
Why?
Read more …
August 20th, 2006
August 18, 2006 -
Mainstream news is the famous bandwagon jumper. It’s not uncommon for headlines such as “Bull markets roar ahead!” to be followed by “Bear markets spell disaster for investors” to be followed by “Emerging markets booming!” to be followed by “Emerging markets spectacular run is over!” to be followed with “Gold: the next safe investment haven?” to be followed with “Gold has lost its Midas touch!” (i.e. Timothy Middleton, on the MSN money webpage, called gold a “poor investment” in February of 2006) all within weeks, sometimes just days, and yes, sometimes within just hours of each other.
For news agencies, the name of the game, just as it is with any other company, is money. News media companies earn the majority of their money from advertising revenue, much of it increasingly online. That is why you get such ridiculous headlines as news companies fight for the attention of the average web surfer. More proven hits to their site produces more advertising revenue for the company, whereas normal, boring dull and more truthful headlines would not do the trick. Therefore, the wildest headlines hit the stage.
To steal an analogy from one of my favorite movies, The Matrix, I strive to enlighten you with the red pill. We provide information that you will never read about in Bloomberg, Reuters, the Wall Street Journal or the BBC and news that they will never hear about on MSNBC or CNBC. I’ll take you “deep down the rabbit hole” to uncover the truth.
Read more …
August 18th, 2006
August 16, 2006 -
When it comes to investing, nothing kills good returns more than nationalism. And nationalism rules at large investment firms.
In mid-2006, as you can see from the chart below,the major U.S. stock market index, the S&P 500 stands exactly at the same level it stood seven and a half years ago at about 1,250. So over seven and a half years if your portfolio has tracked the S&P 500’s index as some 97% of U.S. professional money managers aim to do, you have about the same amount of money you had seven and a half years ago – only with the rapid deflation of the dollar, your same amount of dollars buys much less today, so in all actuality, tracking the index has lost you money. That’s a whole lot of waiting for a whole lot of nothing.
And that’s the good news.
The bad news is, as of 2006, the U.S. stock market’s performance will likely become even worse for the rest of this decade.
Why?
Read more …
August 16th, 2006
August 14, 2006 -
Unless your name is Warren Buffet, the days of buy and hold are over. Actually even if your name is Warren Buffet, the days of buy and hold are over. At least they are for the rest of this decade. Buy and hold as a strategy is dead and will get you nowhere for the second half of this decade.
Take a look at the following stats.
The U.S. Indexes
From Oct. 31, 2000 to Jun 16, 2006, the U.S. S&P 500 index went from 1,429 to 1, 256, a loss of 12%.
From Oct. 31, 2000 to Jun 16, 2006, the U.S. Dow Jones index went from 10,971 to
11, 014, a gain of 0.3%.
From Oct. 31, 2000 to Jun 16, 2006, the U.S. Nasdaq index went from 3,369 to 2, 129, a loss of 37%.
The London Indexes
From Oct. 31, 2000 to Jun 16, 2006, the FTSE 250 index went from 6,589 to 9,114, a gain of 38%,
From Oct. 31, 2000 to Jun 16, 2006 the FTSE Techmark100 went from 3,353 to 1,321, a loss of 61%.
The Japanese Indexes
From Oct. 31, 2000 to Jun 16, 2006, the Nikkei 225 went from 14,539 to 14,860 , a gain of 2%.
For the past six years, if you had primarily been invested in the U.S. in portfolios that tracked the major indexes, you would have gained no money, or lost between 12% to 38% of your money. During this same time period if you were invested in the U.K. indexes, you would have gained 38% or lost 61%, or somewhere in between, depending if you were invested in the tech sector or not. Even if you had gained 38%, broken down to annual returns, this return rate is much less impressive return of just over 8% a year. And in Japan, you basically would have made no money over the past six years being invested in the Nikkei 225 index.
Read more …
August 14th, 2006
August 14, 2006 -
“The central bank is an institution of the most deadly hostility existing against the principles and form of our constitution. I am an enemy to all banks discounting bills or notes for anything but coin. If American people ever allow private banks to control the issuance of their currency first by inflation and then by deflation, the banks that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent that their fathers conquered.” – U.S. President Thomas Jefferson.
“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.” – U.S. President Dwight D. Eisenhower
Two former American Presidents, Thomas Jefferson and Dwight D. Eisenhower, predicted with amazing prescience the development of two situations that they stated would threaten the very liberties and economic well-being of the world. Thomas Jefferson made his statement over two centuries ago, and Dwight D. Eisenhower made his comment almost half a century ago.
One must wonder why these two presidents were so worried about these possible developments that one was compelled to state it would cause a nation’s children to become “homeless” and another was compelled to state it would become a direct threat to “liberties and democratic processes”.
Read more …
August 14th, 2006
August 12, 2006 -
In June, 2006, www.marketwatch.com (an online financial news service) reported that global investment firms Bear Stearns, Goldman Sachs, Lehman Brothers, Morgan Stanley and Merrill Lynch all declared double digit profit increases in the second quarter of 2006. In fact, upon closer inspection, this statement understated how profitable some of these firms really were. Morgan Stanley reported profits that more than doubled, while pre-tax income from their retail brokerage unit rose 33% and their asset management income rose 28%. Merrill Lynch reported that 2nd quarter 2006 profits rose by 44% while asset management revenue rose 24% and commission revenue rose by a hefty 27%. Bear Stearns reported that 2nd quarter profit rose by 81% while their private client services revenue rose by a rosy 22% due to increased management fees and commissions. And of all these windfalls of profits, most of the executives of these investment firms paid themselves hefty, fat portions.
Now we know at SmartKnowledgeU™, from anecdotal stories, that most people who had individual investment portfolios being managed by these firms were not happy with their returns in the second quarter 2006. In fact, many of the people we spoke to lost substantial amounts of money during this quarter. So how could these same firms be declaring record profits?
Read more …
August 12th, 2006
August 11, 2006 -
In mid-2006, the global markets corrected a great deal. In the U.S., the Dow plummeted 4%, the Nasdaq about 6%, and the S&P 500 about 5% in a single week. European stocks posted their biggest drop since May 2003, and the FTSE 100 in the UK had its biggest two-day loss in 3 years. And that was just the beginning of very turbulent times in the global stock market that destroyed billions of dollars of capital. On the other hand, in Asia, as of May 11th, the HK Hang Seng index was up 22%, the South Korean index up 55%, the Australian markets up 31%, and China was up 50% over their 12-month lows before these markets also corrected with the global market correction in the past 7 days.
In addition, the U.S. was allocating $2 billion to shore up its borders, major conflict still was raging in Iraq and Afghanistan, and Venezuela had increased the top royalty rates on oil to 33% from 16.67% after raising this rate from just 1% in October, 2004. In Bolivia, Evo Morales had followed his friend Chavez’s lead in protecting national assets, and nationalized his country’s oil and natural gas resources. And in Mexico, political unrest, according to Subcomandante Marcos, was the worst since 1994 as Mexico neared its next Presidential election. Still that wasn’t even the worst of it.
In Iran, the threat of nuclear confrontation with Israel and the United States loomed, and in the U.S., record trade deficits, a falling dollar, and another bad expected hurricane season (due to global warming) waited ahead.
So What is an Investor to Do?
Read more …
August 11th, 2006
August 9, 2006 -
Every wonder why you are reluctant to ask a large investment firm advisor if 20% annual returns are possible without the assumption of enormous risk? The answer is simple. Most big investment firms, through squawk boxes on MSNBC, and through the reinforcement of their portfolio managers and financial consultants have conditioned you to believe that 20% stock returns are not possible without great risk. I’m here to bust that myth and to tell you what you need to know to start earning higher returns in your stock portfolio.
Read more …
August 9th, 2006
August 7, 2006 -
If you’re frustrated from having one financial consultant after another financial consultant provide you with inadequate returns on your stock portfolio, you’re not the only one. Trust me, you have lots of company out there. Consider the fact that Smith Barney alone employs over 11,000 financial consultants in just the United States. How many of that 11,000 do you really think are superior financial consultants?
Finding a superior financial consultant isn’t always about the financial consultant. Sometimes it is also about you. Are you willing to also make the commitments to find a superior financial consultant? In this article, I’ll discuss one crucial behavior about financial consultants and two regarding the behavior of you, the investor.
So here are my three tips:
Read more …
August 7th, 2006
Previous Posts
