For a much higher level of premium information and specific guidance about how to achieve financial freedom with our PROPRIETARY investment system, consider our subscription services. Learn more about our premier investment research and education services, the SmartKnowledgeU™ Investment Education System here, and our premier stock research newsletter,the Global Stock Picker, a newsletter where the return of our Model Portfolio is 21.68% just 12-1/2 months after our launch, a figure that is outperforming U.S. and U.K. markets by nearly 40%, the Chinese Shanghai SSE index by more than 63.03%, and the India BSESN index by more than 24.41%!

Most Read Posts (64 articles) – Discover which articles Underground Investor™ readers are most interested in. See the full database, including the most recent articles that may not be listed below,  by clicking the link above.

Sept. 27, 2007 – 101 Reasons Why Managing Your Money is the Quickest Way to Build Wealth
Sept. 25, 2007 – 10 Surefire Ways to Make an Investment Fortune
Sept. 15, 2007 – Why the U.S. Feds 0.50% Rate Cut Won’t Save the Markets
Sept. 15, 2007 – U.S. Interest Rate Cut to Have Little Long-Term Positive Effect
Aug. 20, 2007 – How Much Does the Gov’t Really Manipulate Markets
Aug. 9, 2007 – More Gov’t Foolishness (or Lies) Again: Markets are Sound…NOT!
Aug. 9, 2007 – Chinese Tariffs and the Nuclear Option
Jul. 24, 2007 – How to Invest Like the World’s Greatest Investors
Jun. 17, 2007 – Get Out of Dollar-Denominated Bonds While You Still Can!
May 1, 2007 – Uranium Stocks are Finally Getting the Attention They Deserve
Apr. 23, 2007 – The Emperor’s New Clothes Abound in the Investment Industry. Don’t Get Cheated by Your Advisor
Apr. 20, 2007 – Use Intelligent Strategies to Push Risk Back onto Investment Firms
Apr. 19, 2007 – In Risky Markets, Follow the Behavior of the Ultra-Rich, Not the Rich
Apr. 12, 2007 – The Secret to Investing

Gold Investments (37 articles) - Use traditional rules to invest in gold stocks and you’ll lose money hand over fist with this asset class. Learn more about one of the most important components of every portfolio for future years to come. See the full database, including the most recent articles that may not be listed below, by clicking the above link.

April 23, 2008 – Will U.S. Markets Crash Now or Later?
Feb. 4, 2008 – Could Chinese New Year’s Fuel the Next Rally Higher for Gold Stocks?
Jan. 29, 2008 – Even After This Strong Run, Gold Stocks are Still a Bargain Today. Here’s Why.
Jan. 5, 2008 – A Sneak Peak at Our Premium Level Information
Nov. 4, 2007 – Is Hyperinflation Coming to the U.S.? It’s Time to Stock Up on Gold.
Nov. 4. 2007 – Gold is the Best Investment Today, History Tells Us So.
Nov. 2, 3007 – Gold Expensive at $791/oz.? Not by a Longshot
Jun. 5, 2007 – Learn How NOT to Invest in Gold
Mar. 30, 2007 – Navigate the Minefields of the Investment Information Highway
Mar. 7, 2007 – This Bounce in Gold Markets Merits a Cautious Approach
Mar. 6, 2007 – Gold Stocks Correction – What it Means?
Feb. 28, 2007 – How to Profit from a Weakening Market, Gold Stocks, & More, Part II
Feb. 28, 2007 – Buying Opportunity in Gold Stocks
Feb. 28, 2007 – How to Profit from a Weakening Market, Gold Stocks, & More, Part I
Feb. 23, 2007 – Uncover the Ignored Asset Classes
Feb. 12, 2007 – How Do I Know that Institutional Money is Still Not on Board with Gold?
Jan. 25, 2007 – If You Don’t Own Gold Stocks, You Need To
Jan. 23, 2007 – Building Wealth Requires More than Just Contrarian Investing
Jan. 14, 2007 – Use the Long Tail of Investing to Accurately Predict the Price of Gold
Jan. 11, 2007 – The REAL DEAL about Gold and Energy
Dec. 13, 2007 – Commodities and Asians: Apparently We All Look Alike
Nov. 6, 2006 – Sometimes Silence is Golden
Oct. 10, 2006 – Shock and Awe Awaits Global Markets
Oct. 4, 2006 – Is Gold’s Correction Over Yet?
Oct. 2, 2006 – Fiat Currency Concerns Give Rise to a Gold & Silver Backed Currency System
Oct. 1, 2006 – The Gold Timeline – A History of Gold Prices
Sept. 16, 2006 – Has the Commodities Bubble Burst? No, No, No!
Sept. 13, 2006 – Sell the Rumor, Buy the News
Sept. 11, 2006 – Gold’s Speculative Stigma is Unwarranted
Sept. 3, 2006 – Gold’s Glitter is Genuine
Aug. 14, 2006- Knowing Your History is More Important to Creating Wealth than Fundamental Analysis

Financial Crisis, Dollar Crisis & Recession Proof Investing (30 articles) – Foolish investors’ eyes lit up as New Century Financial dropped from $30 to $20 a share during the recent subprime mortgage fiasco. Their hearts thumped with excitement as shares dropped from $20 to $10 and they doubled down. When shares dropped to $5 they thought it had to be the bottom and put their last remaining money into New Century. A month later, they lost everything. There is similar optimism surrounding the dollar today from self-declared currency experts. Discover why the dollar is much more likely to go the way of New Century than experience a comeback like Muhammad Ali’s Rumble in the Jungle. For the most recent articles, perhaps not listed below, click the above category link.

June 26, 2008 – The One Question That Will Have the Greatest Impact on Your Financial Future
May 14, 2008 – What’s Driving the Price of Oil Higher? It’s the Dollar, Stupid!
April 30, 2008 - How Low Will the Feds Go?
April 17, 2008 – Monetary Inflation. How Increased Paper Wealth Can Translate into a Lower Standard of Living
March 3, 2008 – Why Investors Will Never Make Money in this Bear Market
Feb. 20, 2008 – The Secret to Building Wealth in Volatile Markets
Feb. 6, 2008 – Is Recession in the U.S. Coming? We’re Already in One.
Jan. 28, 2008 – The Outcome of the Fed’s Interest Rate Cuts? History is the Best Oracle.
Jan. 24, 2008 – The Fed’s 0.75% Interest Rate Cut – A Recipe for Future Disaster
Dec. 7, 2007 – The Dollar Panic. Is it Real?
Sept. 19, 2007 – Signs of a Peak Investment Crisis Keep Coming
June 18, 2007 – Alan Greenspan’s Call of Checkmate on China is Premature
June 17, 2007 – PIMCO’s Bill Gross and the Economist Agree with SmartKnowledgeU 6 Months After the Fact!
May 28, 2007 – The Politics of Higher Oil Prices
May 26, 2007 – Asian Countries Pooling Reserves to Protect Themselves from the Incredible Shrinking Dollar, Part II
May 25, 2007 – Asian Countries Pooling Reserves, Part I
May 3, 2007 – The Death of the 3-Year Treasury Note
Apr. 1, 2007 – The Next Cold War Will be an Economic One
Jan. 25, 2007 – Dollar-Denominated Bonds Faltering
Jan. 9, 2007 – Use the Longtail of Investing to Accurately Predict Dollar Behavior
Jan 7, 2007 – 10 Reasons Why Dollar-Denominate Bonds Aren’t Safe
Dec. 21, 2006 – Iran Presents More Trouble for the U.S. Dollar
Dec. 7, 2006 – The U.S. has Perfected the Incredible Shrinking Dollar

Free Stock Picks (24 articles) – While our top-shelf stock picks and ideas that have since returned 100% to 200% returns are reserved for our members only, here read articles about some mid-shelf stock picks and ideas that have already returned 30% returns in less than a year. Access the full database, including the most recent articles that may not be listed below,  by clicking the topic link above.

Jun. 4, 2007 – To Prove the Effectiveness of Our SmartKnowledgeU™ Investment System, Even Our Weakest Picks that We’ve Given Away for FREE Have Soared
Apr. 29, 2007 – After BAIDU, Possibly Focus Media
Apr. 2, 2007 – Profit, Don’t Lose From Market Corrections
Apr. 2, 2007 – Global Warming Presents Easy 30% Gains for Underground Investor Readers
Mar. 13, 2007 – Beware the Perpetual Bulls, Part II
Feb. 18, 2007 – Banking Sector FY 2008 – Positive for Japan & India, Negative for China
Jan. 4, 2007 – Chinese Technology Companies to Watch in 2007
Dec. 19, 2007 – MSFT and Internet Protocol Version 6
Dec. 12, 2006 – It’s Time to Keep a Close Eye on Indian Stocks ICICI & HDFC
Dec. 7, 2006 – The Ocean Becomes a New Growth Point in the World Economy
Oct. 30, 2006 – What’s the Safest Place to Invest in the Oil Industry Now?
Oct. 30, 2006 – You’ll Find Ignored Investment Opportunities in the DRC & Libya
Oct. 23, 2006 – Indian Banks Anyone? Four Letters: HDFC
Oct. 9, 2006 – Don’t Believe the Hype – Avoid Chinese Bank Stocks

The Peak Investment Crisis & Stock Market Crash (57 articles) – Bubbling underneath the surface, there lies a peak investment crisis. When it hits, savvy investors will build a fortune. Unfortunately, most investors will be blindsided and lose great fortunes instead. Access the entire database, including the most recent articles that may not be listed below,  by clicking on the above category link.

Nov. 4, 2007 – Is Hyperinflation Coming to the U.S.? It’s Time to Stock Up on Gold.
Nov. 4. 2007 – Gold is the Best Investment Today, Part II
Oct. 15, 2007 – Our New Forum on Facebook: Crisis Investing
Oct. 9, 2007 – Beware the Turbulence that Lies Beneath the Surface, Part I
Sept. 20, 2007 -The Signs of a Peak Investment Crisis Keep Coming
Sept. 19, 2007 -Why the U.S. Fed’s 0.50% Rate Cut Won’t Save the Markets
Aug. 9, 2007 – More Gov’t Foolishness Again
Jun. 29, 2007 – Don’t Let the Strength of the U.S. Markets in the First Half of 2007 Fool You
Mar. 11, 2007 – It’s the Difference Between Chasing & Building Wealth
Mar. 6, 2007 – What this Correction Means for Gold Stocks
Feb. 28, 2007 – How to Profit From a Weakening Market & Gold Stocks
Sept. 9, 2006 – The Peak Investment Crisis
Aug. 11, 2006 – How to Protect Your Portfolio During Turbulent Markets

A New Investment Paradigm for the 21st Century (11 articles) – Fundamental and Value investing may take years of patience to pay off (i.e. Apple Computers was a huge value stock at $13 a share and took more than four years of waiting to pay off huge), Growth investing often leads to chasing hot sectors that correct rapidly. Discover why changing conditions in today’s global market has created a new investment paradigm that is hands down the best way to invest today. Click the link above to see all articles, including the most recent articles that may not be listed below,  in this category.

Jul. 24, 2007 – How to Invest Like the World’s Greatest Investors
Feb. 25, 2007 – Frontrunning Can Make You a Fortune
Jan. 30, 2007 – The New Paradigm of Successful Investment Strategies
Jan. 21, 2007 – 10 Reasons the Longtail of Investing is the Only Way to Build Wealth
Jan. 16, 2007 – Use the Longtail of Investing to Predict Major Market Events with High Accuracy
Jan. 9, 2007 – Accurately Predict U.S. Dollar Behavior
Sept. 1, 2006 – What Mark Cuban Failed to Realize About Investing

The Biggest Investment Myths (62 articles) – All investment professionals, from investment firms to financial consultants to the financial journal purposely spread tales of lies and deception. Jim Cramer, an investment professional that amassed a fortune as a hedge fund manager, recently stated that the last thing he ever wanted to do is to tell the truth. Find out why deception is part of the game in the investment industry.  Click the category link above to access the full database, including the most recent articles that may not be listed below.

Oct. 25, 2007 – New Home Sales Went Up. So What?
Oct. 15, 2007 – Beware the Turbulence that Lies Beneath the Surface, II
May 6, 2007 – Economic Reports Drive Short-Term Behavior, but Hardly Represent the Truth
Mar. 21, 2007 – The Short-Term May be Rosy, but Beware the Financial Crisis that is Building Steam
Mar. 4, 2007 – Foreign Markets aren’t as Risky as the Pundits Say
Feb. 23, 3007 – Evolve Your Investment Strategies with Evolving Technology
Feb. 6, 2007 – My Problem with Investment Newsletters (except ours, of course!)
Feb. 4, 2007 – 10 Questions to Help You Find a Superior Financial Consultant
Jan. 30, 2007 – A New Paradigm of Successful Investment Strategies
Jan. 25, 2007 – Despite Evidence to the Contrary, Millions of Investors Will Believe Whatever they Want to Believe
Jan. 7, 2007 – 10 Reasons Why Dollar Denominated Bonds Aren’t as Safe as You Think
Jan. 5, 2007 – How Understanding MMA Champions will Make You a Better Investor
Dec. 18, 2006 – The True Determinants of Wealth Have Nothing to do with Asset Allocation
Nov. 12, 2006 – The Greatest Investment Myth Exposed: Why Modern Portfolio Theory WILL NEVER Make You Rich.

Wealth Literacy (88 articles) – Wealth Literacy is the new Financial Literacy. Financial Literacy may teach you to be fiscally responsible but you can still be financially literate and remain poor. Wealth Literacy fills in all the holes of Financial Literacy and teaches you how to build wealth today. Click the category link above to see new articles that may not be listed below.

Oct. 15, 2007 – Our New Facebook Investment Group – Crisis Investing
Oct. 9, 2007 – Beware the Turbulence that Lies Beneath the Surface, I
Apr. 23, 2007 – Beware the Emperor’s New Clothes -Don’t Get Cheated by Your Adviser
Apr. 20, 2007 – Intelligent Investment Strategies Push Risk Off of You & Back onto Investment Firms
Apr. 19, 2007 – In Risky Markets, Follow the Behavior of the Ultra-Rich, Not the Rich
Apr. 17, 2007 – Why Wealth Literacy is More Important than Financial Literacy, Part II
Apr. 15, 2007 – Why Wealth Literacy is More Important than Financial Literacy, Part I
Apr. 13, 2007 – Pop Investing is All the Rage, but it’s a Loser’s Game
Apr. 12, 2007 – The Secret to Investing in 3 Easy Rules
Apr. 10, 2007 – Build Wealth by Answering These 5 Questions
Mar. 30, 2007 - How to Navigate the Minefields of the Investment Information Highway
Mar. 12, 2007 – The Short-Term May be Rosy, But Beware the Financial Crisis that is Building Steam
Mar. 11, 2007 – The Difference Between Chasing Wealth and Building Wealth
Feb 23, 2007 – Uncover the Ignored Asset Classes
Feb. 21, 2007 – Why Traditional Education Stifles Your Ability to Build Wealth
Feb. 15, 2007 – 7 Habits of Highly Effective Investors
Feb. 8, 2007 – 10 Reasons Why a Professional Athlete’s Best Friend Needs to be his Financial Adviser

Politics and Stocks (30 articles) – Think you don’t need to understand politics to be a good investor? Think again. If you don’t understand politics, you’ll never fully understand the most likely future direction of global stock markets, oil, gold, and currency markets. Click the above category link to see the full database of articles, including the most recent articles that may not be listed below.

Apr. 11, 2007 – Building Great Wealth in Stocks Requires Understanding Politics
Apr. 1, 2007 – The Next Cold War will be an Economic One
Apr. 1, 2007 – Possible U.S. Military Intervention in Iran
Mar. 13, 2007 – To Err on the Subject of Chinese Tariffs May Expedite a Shakespearean Tragedy
Dec. 17, 2007 – Do Free Markets and Free Trade Exist?

Oil Crisis (15 articles) – Think oil prices are controlled by supply and demand, futures traders, or Peak Oil Theory? Think again. Discover the true determinants of oil price behavior, primarily dollar devaluation. Click the above category link to see the full database of articles, including the most recent articles that may not be listed below.

May 14, 2009 – What’s Driving the Price of Oil Higher? It’s the Dollar, Stupid!
May 28, 2007 – The Politics of Higher Oil Prices
Nov. 26, 2006 – Does the end of Mid-Term Elections Mean Higher Gas Prices Again?
Nov. 8, 2006 – The Peak Oil Theory was Created by – You Guessed it – Big Oil!
Oct. 30, 2006 – The Safest Place to Invest in the Oil Industry Now? – Oil Refiners, Pipeline Manufacturers, Deep Sea Platform & Drilling Manufacturers, and 4D Imaging Companies
Oct. 30, 2006 – You’ll Find Ignored Investment Opportunities in the DRC and Libya
Oct. 12, 2006 – How Has Prince Bandar bin Sultan Affected Oil Prices in Years Past?

Uranium Investments (3 articles)– The bulk of this information is contained within our members only area, but you’ll find an article or two here. Click the above category link to see the full database of articles, including the most recent articles that may not be listed below.

May 1, 2007 – Uranium Stocks are Finally Getting Some Attention. Better Late than Never.
May 1, 2007 – What Does Uranium Futures Mean for the Future of Uranium Stocks?

Africa Investments (5 articles) – For the more daring investor willing to place small bets for HUGE returns, Africa awaits.

Canada Investments (4 articles) – Articles about Canada and the Canadian stock market and hands down some of the best opportunities in ANY global stock market.

China Investments (21 articles) – Articles about Chinese stocks and the Chinese stock market.

India Investments (4 articles) – Articles about Indian stocks and the Indian stock market.

Japan Investments (4 articles) – Articles about the Japanese economy and stock market.

Russia Investments (1 articles) – Articles about the Russian economy and stock market

U.S. Stocks (25 articles) – Articles about U.S. stocks and the American stock market.

Vietnam Investments (3 article) – Articles about Vietnam and the explosive yet unregulated Vietnamese market.

Investment Psychology (22 articles) – One of the most important but yet most overlooked and ignored aspects of investing is psychology. Discover how an improper mindset can be the difference between huge losses and huge gains in your portfolio. Click the above category link to see the full database of articles, including the most recent articles that may not be listed below.

Feb. 7, 2007 – Investors Should Apply the Rule of Shopping 101 to Buying Stocks
Jan. 3, 2007 – Will the 2006 Year End Rally Continue into 2007?
Dec. 21, 2006 - Perception Can Overrule Reality in Driving Behavior but Reality Will Overrule Perceptions in Driving Outcome
Nov. 30, 2006 – The Recency Effect Hurts Investment Decisions
Nov. 2, 2006- Canadian PM Stephen Harper & Hungarian PM Ferenc Gyurcsany – the More Things Change the More They Stay the Same
Nov. 2, 2006 – Irrational, Not Rational, Behavior Often Drives Markets
Oct. 24, 2006 – The Financial Media are Like Bad Weatherman
Oct. 8, 2006 – The SmartKnowledgeU Reader’s List
Oct. 4, 2006 – Hungarian PM Ferenc Gyurcsany: We LIED Morning, Noon, & Night!
Sept. 26, 2007 – Move Over Harry Potter! The Deceptive Wizardry of Fund Managers
Sept. 17, 2006 – When it Comes to Investing, You Get What You Pay For
Sept. 16, 2006 – Why Do People Believe One of the Dumbest, Most Flawed & Deceptive Measures of Economic Conditions?
Sept. 13, 2006 – Why Book Smarts Won’t Help You Build Wealth
Sept. 10, 2006 – Investment Psychology 101
Aug. 24, 2006 – To Become Wealthy, Abandon Widespread Beliefs About Investing
Aug. 18, 2006 – Following Mainstream Media Will Lead You Down a Disastrous Investment Road
Aug. 3, 2006 – Following Short-Term Fluctuations Will Create Poor Investment Decisions

Options Investing (10 articles) – We don’t discuss options much here but occasionally, if there is a compelling play, we’ll write an article or two.

Water Investing (1 article) – Read articles about investing in water as a commodity as the world’s fresh water supply becomes more scarce.

The Zen of Investing (42 posts) – Read articles from our resident martial arts expert regarding how understanding principles of martial arts can make you a much better investor. A combination of “The Art of War” and “The Art of Investing” if you will. Click the above category link to see the full database of articles, including the most recent articles that may not be listed below.

Technorati Tags: investment blog, investment strategies, dollar crisis, financial crisis, oil crisis, stock market crash, howto invest gold, recession proof, best ways to invest, Wall Street bailout

In the book F.I.A.S.C.O, an expose´ about the failure of Wall Street to serve their clients responsibly, author Frank Partnoy described the interview process for a highly sought-after position in Morgan Stanley’s asset management group. According to Partnoy, the Morgan Stanley executive that won the job told him that a key question in his interview process was the following: “What are the most important qualities a salesman can have?” The executive relayed to Partnoy that he clinched the job by answering, “Without a doubt, integrity. This is a trust business, and we are selling our trust.” I have always maintained that most successful investment professionals employed by large commercial investment firms would be extremely successful in any sales position, whether that position was in the pharmaceutical, automotive, or retail industry. Given the scandals that have rocked nearly every single commercial investment firm around the world, trust is now a very hard sell in the investment industry. Still, the most successful investment professionals have always been consummate salespersons, and they still know exactly how to psychologically manipulate you to gain your trust. And this is where the crisis can help you identify whether or not an investment professional is deserving of your trust.

Over the years, many different studies regarding stock market performance among investment professionals have come to the same conclusion – that top investment professionals employed by the commercial investment industry are barely likely to perform better than random stock picking. Among the most well-known of these studies was a series of studies performed by the Wall Street Journal in which Journal staffers were instructed to choose stocks by flinging darts at stock table pasted to a board. In late 1998, the WSJ printed the results of 100 of these dart-throwing contests. The professionals won 61% of the time, but still lost an embarrassing 39% of the time to stocks selected by random dart throwing. Against the Dow Jones Industrial index, the professionals’ winning percentage plummeted from 61% to 51%, meaning that half the time the index beat the professionals and half the time, the professionals won. Thus, an investor that merely bought an index fund would have performed nearly as well as every investment professional that partook in the study, and without having to pay any management fees.

Since then, many academics have attributed the near equivalent performance of investment professionals and major market indexes to the efficient market hypothesis (EMH) that states that no investor can earn abnormal returns by trading in securities markets because all security prices reflect all available information. This is utter nonsense. Investment professionals rarely outperform market indexes not because of the EMH but because of the GMH, the Greedy Market Hypothesis. Investment professionals employed at commercial investment firms all over the world generally have one job – to bring assets into the firm, NOT to produce stellar returns for clients. Since their primary job is to convince potential clients to hand their money over to the firm, as odd as this may sound, investment professionals rarely know a lot about investing. They know a lot about how to present themselves to appear to know a lot about investing, and even more about superior sales tactics, but not a lot about investing.

On the contrary, if an investment professional’s primary job was to maximize portfolio returns, then top investment professionals would most likely significantly outperform the returns of major indexes in their respective countries. If you have wondered in the past why the performance of many investment professionals mimics the performance of your domestic stock market index year after year, it is because they employ the terrible diversification sales strategy (versus a legitimate investment strategy) to manage your portfolio. As a consequence of this emphasis on selling versus returns, if you’ve parked your money with a commercial investment firm, you are likely to own every single major component of the stock market index in your country. This is the scam of diversification – you will own almost exactly the same stocks that comprise the major stock market indexes. Furthermore, during terrible global markets such as the ones we have recently experienced, you will be paying management fees for the gift of achieving the same returns as an index fund.

Poor global markets do one thing well. They expose all the flaws and ugly scams, including diversification, that investment professionals employ to gain your trust and your money. All the strengths of salesmen masquerading as investment professionals that are glorified during bull markets are readily exposed as weaknesses during terrible markets. Be warned that this doesn’t mean that their sales skills will diminish, as surely many of the best salesmen will rack up well-constructed but fallacious arguments to convince you that market bottoms have formed when indeed they have not. However, if you fall victim to their same sales ploys after reading this article, no matter how expert their sales tactics may be, you have no one to blame but yourself this time around. Why? This crisis has made it easy to spot the frauds.

Just because an industry has spent billions of dollars on marketing a strategy over a period of many decades does not make it a wise strategy. Instead of clinging to a false belief that has only benefited commercial investment firms for decades and never the average investor, every investor should be using this opportunity to challenge and investigate the validity of past investment beliefs propagated by the industry. Though the commercial investment industry has propagated a lot of lies over the past few years, I maintain that diversification is still the biggest lie that the greatest majority of investors refuse to acknowledge. If you are one such person, let me use history to help you shed yourself of this lie. Throughout the course of history, many “incontrovertible truths” have been proven to be lies after long periods of time when millions of people fiercely clung to such lies as truth.

For example, because of oppression by certain authorities of the Catholic Church that occurred hundreds of years ago, millions of people fiercely clung to the erroneous conviction that the sun revolved around the earth, even though the astronomer Copernicus had already documented many compelling reasons that invalidated this “truth” by 1514. In fact, more than 100 years later, this false belief still persisted among the masses, and when the astronomer Galileo agreed with Copernicus, the Catholic church, under orders from Pope Paul V, convicted Galileo of heresy and subjected him to house arrest for the rest of his life. The Catholic Church condemned Galileo for supporting an indefensible position that they stated “[was] contrary to the true sense and authority of Holy Scripture”. Of course, this example is just one of the most famous of thousands of false beliefs propagated by men in positions of authority throughout the course of history.

In light of the above historical perspective and the fact that you will not find a single investment professional that significantly outperformed any of the major global stock market indexes over the past two years by employing a diversification strategy, it is time to seriously question the “wisdom” and the true intent of diversification. Why does the commercial investment industry hire its financial consultants from such a far ranging diversity of professions? If you wanted to work for Ogilvy & Mathers as an advertising executive, you would have no chance of being hired unless you had many years of experience in advertising. If you wanted to work for HOK as an architect, you necessarily must possess a degree in architecture. But if you wanted to work for a commercial investment firm as an investment advisor, the most important qualification that you needed to have, bar none, was the ability to sell, not the ability to understand financial markets.

I have always maintained that diversification is a sell-side strategy that commercial investment firms employ to hide the flaws and weaknesses of their salesmen and saleswomen that understand very little about how to identify the macroeconomic trends so important to understand the best ways to invest your money. Diversification theory states that it is impossible to know what asset classes will perform well every year and thus, the reason diversification is necessary. This is a lie. Because of the commercial investment industry’s emphasis in their hiring and training processes in the ability of their employees to sell, it may be impossible for THEIR investment consultants to know what asset classes will outperform this year; however this does not mean that it is impossible for ANY investment consultant to know what sectors will outperform this year.

On August 14, 2006, to prepare investors for this developing crisis, I wrote an article called “The Days of Buy and Hold are Over”, in which I stated: “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.” Just in case investors did not understand my message completely, I followed-up this article with a more explicit message just two days later on August 16, of 2006, in which I discussed the fact that the S&P 500 in mid-2006 stood at the same level it did 7 & 1/2 years prior on January 1, 1999. Regarding this situation back then, I stated : “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.” I was so adamant about these views back then because for anyone willing to seek the truth, the fact that an imminent crisis was brewing was crystal clear and indisputable. As I said, diversification is a total cop-out but a fine strategy best reserved for salesmen that understand nothing about macroeconomics. And this brings me to my last and final point.

Today, trust still probably ranks as the number one most important quality for choosing an investment consultant. Poor markets, ironically, make this task infinitely easier. For those investment consultants that are asking for your trust today, just seek out their track record of performance for the past two years. If they have significantly outperformed the global market indexes during this time, it is very likely that you can trust them as obviously they have executed some markedly different strategies from the rest of the crowd to achieve their returns. If they have performed in line with the general poor performance of the global market indexes – adding gains when the global markets experience a bear-market rally, and losing value when the indexes tank – you almost certainly need to keep searching for someone you can trust.

Many investment firms apply not only the terrible theory of diversification to their portfolio management strategies but also to the analysis they disseminate. In other words, when global market indexes experience a bounce, they employ one analyst that writes a publication stating that this is merely a bear market rally, while another one of their employed analysts writes an article that this event marks the beginning of a new bull market. When oil is trading near $50 a barrel, they employ one analyst that states oil is heading to $80 a barrel while another one of their analysts states that oil is heading to $30 a barrel. Or, if they have analysts that make 10 wrong calls in a row and then make one correct call, they extol the virtues of this one correct call while conveniently burying the grave errors of their prior 10 predictions. Of course, investment firms that employ the above strategies will appear to be correct all the time, but a simple check of their track record should reveal them as either fraudulent or trustworthy.

Given the accessibility to a firm’s track record granted by the internet, checking a firm’s track record during the last two years should be fairly easy. Review their performance track record through their blogs and publicly posted information. Since many firms will delete their erroneous predictions on their own website, Google the firm’s name and see if you can find other websites that re-published their past predictions. Review emails a firm may have sent you during the past two years since you now have the benefit of hindsight to determine if the majority of their predictions have been excellent or plain rubbish. Taking these few simple steps should allow you to uncover a clear and unbiased record any firm’s track record. In the end, if you can’t find any public information that allows you to establish or verify an investment firm’s track record, than this type of discovery should raise a serious red flag.

During a bull market, you may not know who to trust as everyone looks like a genius, but during terrible markets, when very few perform well, finding an investment firm you can trust should become infinitely easier. Just follow the tips above and finding a trustworthy firm to inform you about the best ways to invest money during this crisis should become a cinch! And what analysts should you trust in the future? To avoid the Machiavellian professionals that are using this crisis for self-promotion, simply identify the small group of analysts that posted warnings of this crisis months and years before it happened. Any analyst that understands that the fraudulent monetary system implemented by Central Banks is the true root of this crisis would have been able to see this crisis coming for a very long time now.

Recently I’ve posted quite infrequently on this blog as I’ve been busy putting the finishing touches on my book “Confessions of a Wall Street Insider: A Zen Approach to Making a Fortune from the Coming Crisis”. However, I wanted to write a brief entry today regarding the proper psychology that is necessary to build, and not lose, a fortune from this coming crisis. Within the past two weeks, I noticed that the requests to join my Facebook Group, “Crisis Investing” (just go to Facebook and perform a group search to find it) have spiked and that the number of visits to this blog have more than tripled. I imagine that this is so because many people have lost great sums of money at the beginning of this year as stock markets in Asia, the U.S. and Europe have all plunged. For months I’ve been telling people that the stock markets were going to plunge. In fact my exact words at a Crisis Investment seminar I gave in September of 2007 was that “triple digit down days in the Dow would become commonplace.” Of course, if you couldn’t attend any of the seminars I gave in the U.S. or Asia, then you could have found the same guidance on my facebook forum, here at this blog or my subscription services available on this website. Yet most investors took no action until my predictions actually started becoming a reality. And this is the important psychology 101 lesson to be learned here. To make a fortune from this coming crisis, you have to be proactive, and not reactionary.

Most investors only seek help when significant damage to their portfolios has already been done. The proper time to make change is many months before the damage is inflicted. As I’ve been calling for the actions that have afflicted global markets at the beginning of this year for many many months now, the signs have obviously been everywhere and clear to see. Here’s another tip. The probability that the corrections in the U.S. stock market could evolve into a full blown crisis is very strong right now. Whether this happens or not depends a lot on the actions of the U.S. Federal Reserve. However, given that the probability that a greater crisis is very strong, it is still NOT TOO LATE TO PREPARE. If you’ve suffered great losses in the markets already, the worst possible thing you could do is sit tight and hope that you’ll get everything back. Radical changes in your portfolio structure should be made now. The type that will allow you to profit from this crisis, instead of being wiped out from it. You can receive guidance from our Platinum Membership. If not, just ensure that you receive guidance somewhere. And ensure that you receive guidance from an expert, not just from someone that is jumping on the bandwagon of precious metal stocks and lacks experience with this asset class. It would be a shame to be invested in exactly the asset class you need to at this time and STILL LOSE MONEY, which is a possibility if you have anyone other than an expert advising you in your precious metal investments. Good investing.

(1) Buy When Fear is Rampant, Sell When Mania is the Greatest

Every investing course should be accompanied by a psychology course as well. The most difficult thing to do in investing is to buy more when fear and panic is rampant and to sell when mania is the highest. Stock markets and asset classes cycle in peaks and troughs. Most people will not buy stocks until after stocks are plastered all over the news and after they have just risen by 30%, 40%, 50% or more, believing that they will rise higher forever. Buying at the troughs when nobody is talking about a stock or during steep corrections provides a low-risk/high-reward setup for your portfolio.

(2) Learn What Your Neighbor is Doing, Watch Investment Shows on MSNBC and Bloomberg on TV, Listen to the Recommendations of Your Financial Consultant – Then Make Sure that You Don’t Have a Single Thing in Common With Their Strategies

If you are one of the thundering sheep herd and perpetually follow the mindless actions of others, you are virtually guaranteed to lose money or forever relegate your portfolio to average to below-average returns. The surest way to build an investment fortune is to buy asset classes and stocks when nobody is discussing them and to sell them when everyone is talking about them. This requires a nose for market timing. Is market timing impossible as all the global investment firms always tell you? Hardly. Learning what asset classes and individual stocks are poised to skyrocket every year just takes a little bit of time, but is really not that difficult. Since time is a commodity that Private Wealth Managers and Financial Consultants employed by large commercial investment houses lack, they tell you that market timing is impossible merely because they don’t have the time to perform the necessary research.

However, purchasing stocks that are likely close to cyclical bottoms instead of believing that market timing is impossible and indiscriminately buying stocks will easily add another 10% in returns to your portfolio per year. Do you really believe that you can make a fortune by buying any stock that is advertised on a TV program watched by millions of investors worldwide? Ultimately, if you own the same stocks as your neighbor to the right, your neighbor to the left, the talking head on TV, and the talking head at your commercial investment firm, then you are not engaging in the proper activities to build an investment fortune.

If you don’t seek out stocks and asset classes at times when nobody is considering them, you will never make serious money in investing. You may make 10% a year or maybe even 15% a year but if you want to enter the world of the big boys and earn 25% or more in annual returns, you have to dig a lot deeper than your investment peers. Just a couple of months ago (June 25, 2007) this email landed in my inbox from a big investment newsletter publisher. “Over the past week, I’ve crisscrossed northwestern Canada looking for the next great investment. I’m up here to find out what everyone’s invested in. And after attending an investment conference in Vancouver last week, I can tell you absolutely that no one is interested in gold…Base and minor metals will continue to be the best place to have your money over the next few years. Gold, as a virtually useless metal that has few industrial uses, appears to have hit its peak and could be running sideways for years like it has many times in the past.”

Then, in August, when the HUI (the major AMEX gold index) took a sharp hit in response to global market corrections, everyone proclaimed that gold was no longer a safe haven and that gold was “done”. Now, just a one-month later, on September 26, 2007, a lot of people are talking about gold’s strong rapid surge. So was the newsletter that ended up in my mailbox that proclaimed gold as dead in June right in June but terribly wrong in September? The answer is neither. The only person that is wrong is you if you blindly listen to talking heads that end up in your inbox or that you watch on TV. The fact is that little-discussed asset classes and stocks are ignored because perhaps 1 out of 1000 investors truly understand them, and even the ones that parade as experts on TV have been more terribly wrong about their calls than right. So it’s up to you to get off your proverbial bum and learn how to invest for yourself. Chasing stocks higher and buying when everyone else is speaking about them is a sure way to lose money. And so is listening to talking heads. Learn a system that teaches you to buy assets when everyone is ignoring them and you’ll outperform everyone else.

(3) Concentrate, Don’t Diversify

If you’ve read the paragraph above, you already realize that Private Wealth Managers and Financial Consultants are in short supply of time as they partake in the race to gather as many assets as possible for their respective firms. Thus, this is the reason they employ the rule of diversification for your portfolio. U.S. Navy SEALs will tell you that during an operation exfil exercise, the easiest way out is rarely the safest way out. The same holds true in investing, yet diversification is by far and away, the easiest investment strategy that anyone could possibly teach to tens of thousands of financial consultants. Certainly, diversification cannot be a complex strategy if tens of thousand consultants from varied backgrounds and industries can all efficiently apply this concept to their clients’ portfolios with very little training. Diversification is the biggest cop-out investment strategy of all time. It screams of incompetence and lack of skill – “I have no idea what asset classes are going to perform well this year so I’m going to invest you in everything under the sun.”

Assume everyday, a NBA coach looked at his active roster of 12 players and said, “I have no idea who are the best players. Because I don’t know, and don’t care to take the time to figure it out, I’m going to ensure that all 12 players share equal time every game.” This coach is unlikely to win many games versus the coach that takes the time in training camp to assess who his best 5 players are and then consequently plays these 5 players the majority of minutes during every game. This is the difference between diversification and concentration. The coach that diversifies may win some games based upon pure luck because maybe he has a couple great players that can make up for the deficiencies of the poor players he puts on the court every night. Still, most nights, the deficiencies of the poor players will drag down the performance of the excellent players.

However, the coach that concentrates and puts his best players on the court every night will be able to field a team every night that has an excellent chance of winning. This is why we concentrate in investing. To give us the best possible chance of winning. Diversification will never achieve this. Study the best investors in the world. The best investors in the world always manage their own money and they concentrate their portfolios in the best asset classes every year. Don’t believe the hype about diversification – diversification stinks, it doesn’t protect your portfolio, and it certainly will never make you wealthy.

(4) Learn Everything You Can About the Relationship Between Politics and Stocks

On September 18, 2007, the U.S. Federal Reserve cut the Federal Funds Rate (the rates banks borrow from each other and the rates the rates banks loan to customers) by 50 basis points. The U.S. stock markets soared that day, followed by strong surges in Asian markets the following morning. The interest rate cut undoubtedly was not just motivated by a desire to manufacture stability and confidence in the U.S. economy, but also motivated by politics. If you don’t understand what I mean by this, then you have homework to do.

Governments and corporations in every major global economy in the world have formed relationships that have since been coined as “corporatocracies”. Politics has a major hand in all of the following: interest rate cuts, interest rate increases, the price of oil, the price of gold, the valuation of the Euro, the valuation of the dollar, the valuation of the Pound Sterling, permits to mine uranium in Australia, defense spending for national security, decisions to go to war, and contracts awarded to corporations. If you don’t understand politics, you cannot possibly understand global macro-economic trends and what asset classes and stocks offer the best low-risk, high-reward opportunities year after year. The lack of understanding of politics is what causes Chief Investment Officers of major commercial investment houses to make poor calls in the direction of commodity prices and the direction of global economies. Understand politics and your investment returns should increase tremendously.

(5) Learn Everything You Can About Gold as an Investment.

Gold, as an investment, is perhaps the most misunderstood and poorest understood asset class in the world. Some people believe that the physical commodity is the only way to invest in this asset, and as such, only put money into the paper gold ETFs. Other people that invest in gold stocks don’t understand the differences in price behaviour between the juniors and majors; explorers, developers, and producers; hedged and unhedged companies; and the political risk of operating in different countries. Therefore, they never understand the risk-reward quotient of their gold portfolio, sell out during steep corrections, always lose money, and think that gold investments are speculative and stink. Furthermore, they don’t understand that short-term manipulation of prices of the underlying commodity and stocks can’t change the long-term outlook and performance. However, learn how to buy and sell this asset class properly and you will be rewarded as no other asset class can reward you.

(6) Understand Why You Own Everything You Own, Then Stand Firm in Your Convictions

Since most people never take the time to learn how to invest properly, or are fed a bunch of misinformation by the so-called industry professionals, they waffle as much as a shady politician when making investment decisions. They don’t know if they should hold, sell or buy during corrections, or hold or sell during steep runs higher. Primarily they don’t know because they don’t understand what they own because they have allowed someone else to make those decisions. I’ve always found it odd how people will refuse to allow other people to do the most trivial of things for their companies, preferring to take care of them him or herself, or will consult 20 people before buying a car, but will gladly hand over $2 million in cash to a stranger to manage.

Yet, just having conviction is not enough. Being wrong in your convictions can be just as devastating to your portfolio performance than having no conviction at all. For example, in June, July, and August of 2007, many housing analysts repeatedly called bottoms in housing stocks, and many investors, just like sheep, jumped in and bought up shares in housing related stocks. Some even kept increasing position in shares of sub-prime mortgage companies that had plummeted 70% believing they were acquiring the stock for pennies on the dollar. Most of these investors, instead of profiting, lost a great deal of money from stocks that did not stop hemorrhaging and some lost 100% of their money from investing in companies that eventually went bankrupt. This is the lazy man or woman’s way out and almost never ends up well.

When I say “Stand Firm in Your Conviction”, do so only after gaining expertise in a subject matter. Do not blindly follow someone else’s advice just because they appear on Bloomberg, the Wall Street Journal or Reuters. Just because someone has the appearance of an “authority” does not make him or her one. In fact, often there are shameless self-promotion reasons behind media appearances and the only person that is bound to get hurt by blindly listening to these people is you. Only after you take the time to truly learn everything you need to know to become an expert in a particular industry or asset class, then don’t be afraid of going against the grain of the majority opinion. You’ve taken the time to become an expert, so utilize your knowledge in how you manage your portfolio. More times than not, you will be correct when everyone else is wrong.

(7) Make Volatility Your Friend

Most people have been taught that volatility equals risk. Baloney. If you remember that market timing in asset class cycles is possible, then you can basically negate much of the risk of volatility by buying close to the troughs instead of close to the peaks. Furthermore, you can never make any money by buying a bunch of stocks that plod along at 6% to 10% growth a year. Thus, you need volatility in your portfolio in order to make money. In fact, I advocate even owning some speculative stocks to boost the performance of your portfolio. Again, with due diligence, a fair batting average with speculative stocks is not only feasible but very likely. I’ve only been able to obtain 25% to 35% annual gains in stock portfolios by devoting a percentage of my portfolio to speculative stocks that have returned 280%, 260% and 190% a year. At the end of the day I don’t care if I have some speculative stocks that go belly up (meaning they got stopped out at 40% losses) if I have enough stocks that earn several hundred percent that significantly add to the absolute return of my portfolio. Like I said, make volatility your friend.

(8) Never Listen to the Government

The release of government statistics move the market. But that doesn’t make the statistics right or truthful. The Consumer Price Index, Housing Starts, Job Growth, the Consumer Confidence Index, and so on all influence the markets. Markets always await with bated breath for the release of these numbers, then are accordingly swayed higher or lower depending upon whether the reported numbers miss or exceed analysts’ targets. Knowing that these government statistics affect market movements, why would I say disregard them? Here’s the answer.

Rarely are these statistics every forthcoming and aboveboard. Instead they are manufactured to sway markets to react in certain ways. For example, the formula to determine the CPI in the U.S. was tinkered with greatly under President Clinton. Current U.S. Federal Reserve Chairman Ben Bernanke has been reported to be tinkering with the formula even more. If the CPI formula used 15 years ago would report a drastically different number than the CPI formula used today simple due to significant differences in how the CPI is now calculated, how much confidence doest that grant you in the validity of this statistic? Other major benchmark government statistics aren’t even based upon real surveys of actual transactions, but rely heavily on government estimates. Thus, the government just estimates the statistic to be whatever they want it to be so that it will serve their purposes and will steer the economy and the stock markets in the desired direction.

This is why when stock markets turn abruptly and experience sharp corrections, everyone states, “we never saw it coming”. Disregard government statistics, do your own digging to understand the true economic conditions of whatever market you are planning to invest in, and you’ll never suffer destruction of wealth due to unforeseen surprises. Instead, you’ll see the surprises coming from miles away. Especially today (September 2007), with an imminent global economic crisis on the way, it is especially important to disregard the government and prepare accordingly. If you do, you’ll make a fortune while your neighbors will be rocked by “shocking” and “surprise” downturns in stock markets.

(9) Follow the Money Trail

As a means of validation, but certainly not as a primary strategy, occasionally dig down deep and see where the elite money in your country is heading. For example, in early 2006, you would have discovered that Bill Gates and George Soros were shorting the dollar tremendously, a good sign to get rid of any dollars you had and to diversify into Euros, Sterling and gold. With gold mining companies, if you discover that the best, most successful companies in the industry are buying 3 million shares of a speculative stock, well, basically you know that the best minds in the business would never just dump millions into a stock without performing their due diligence. So if your own personal due diligence tells you the stock is a buy, then certainly the discovery of this additional information is reassuring.

However, the number one rule, Rule (6), is always to understand what you own. Thus, you can’t just look at the equity portfolio of Warren Buffet and think that you can duplicate his returns without understanding why you would buy the same stocks he holds. If you don’t understand, you won’t know whether to buy more, sell everything, or hold on to your current position during market downturns and what to do during strong runs higher. If you don’t understand this, you just can’t make money.

(10) Expand Your Investment Horizons Across Global Borders

Too many investors suffer from myopia. They think that if the markets in their country are bad, that they must suffer losses as well too. Often, one market may be down in one region of the world but soaring in another. Broaden your investment borders and you greatly increase your chances of being highly profitable every year. Sometimes, you won’t even have to look outside your country, but just look where no one else is looking. When one of the major indexes in the U.S., the S&P 500 shed 49% of its value from 200-2003, there was another little followed index in the same country that gained 58% during this time. But it was ignored, un-researched, and I doubt if more than 1% of all investors in America benefited from the tremendous run of this asset class.

One last word. All the rules above demand a certain level of creativity. Before I employed the 10 rules above five years ago, I never made much more than 10% a year when investing in stocks. After I started employing the rules above years ago, 20% annual returns a year started seeming like poor returns. Realize that investing is not a science, but an art. All the number crunching, fundamental analysis, and technical analysis in the world will not provide you with better returns than simply being creative with the 10 rules above. So change not only your investment life today with the application of the above rules, but forever change your beliefs about the types of investment returns that are possible and achievable.

Technorati Tags: how to make an investment fortune, wealth literacy

investment strategies wealth building gold stocks

However, for those markets that experienced a significant year end push, I advocate extreme caution as nothing goes straight up without significant corrections. Investors often succumb to the recency effect, quickly forgetting the historical behavior of markets. For example, because the India Sensex ended up about 47% for the year, most investors have already forgotten the 40% freefall of last May and June in the index that caused many investors to pull their hair in grief.

There is a general feeling of euphoria in some markets that is unwarranted by the realities and underlying components of the local stock markets. When year end rallies pushed some of my stocks from 75% gains into over 100% gain territories, I sold them to lock in my gains, and I would recommend that you do the same if you haven’t already done so. While it is true that irrational behavior can continue for what seems to be inordinately long periods of time, and while we’ll probably see some positive activity in the global markets to begin 2007 that will cause people to lose all fear of a correction, I would personally only look to purchase asset classes or stocks that have recently experienced significant corrections. The risk-reward set-up for purchasing stocks in markets that have done nothing but rise higher for the past couple of months is just not good.

If you read my last blog entry of 2006, you will see that not everything is as it appears on the surface. Certainly sometimes the self-fulfilling prophecy effect comes into play as well. An example of this is the well-documented “January effect”, in which small-cap stocks outperform large-cap stocks in January. Often, the mere belief in this effect is enough to make it happen. For example, if millions of people believe in this effect, the effect will replicate itself again this January specifically due to the fact that millions of people will act on their belief and create enough buying volume in small-cap stocks to push their prices higher.

However, what is infinitely more important is to keep track of the long-term trends. What is more likely to happen down the road? As an investor, you need to think like a chess player, eight-steps ahead of the market. In doing so, not only will you not be caught off-guard by rapid shifts in market behavior, but you will better yet, be well-positioned to benefit from market downturns as well as market bull legs.

His alleged strengths: a warrior, indefatigable, willingness to play through a multitude of injuries that many players aren’t, the quickest first step and deadliest crossover in the game, fearless, desire to win.

His alleged faults: takes too many poor percentage shots, doesn’t trust his teammates enough, selfish, interested in individual stats only, past unwillingness to practice hard, immature.

Still, there has been considerable argument even with AI’s faults. Some people will say that AI is not selfish. They argue that if he didn’t take the majority of shots for the Sixers night in and night out, the Sixers had no chance to win. Some argue that all his talk about change has been just that – talk. That no matter how many times AI spoke of trusting his teammates, that when push came to shove, he never learned to do what Kobe has learned to do – trust his teammates with the game on the line. I for one, agree with that last view. There was never an extended period of time in AI’s career where he willingly sacrificed about four or five shots a game to his teammates. As an incredible an athlete as AI is, if he had done so, and the Sixers lost an inordinate amount of those games, then he could have justified his dominance of shots taken in a team-oriented sport without appearing to be selfish. But he never did.

Now, with the trade to Denver, AI is paired with one of the brightest talents in the league, Carmelo Anthony. No more excuses for taking all those shots because no one else on his team could score. Sure, Sixers GM Billy King brought in C-Webb to play alongside AI, but King paired AI with C-Webb about five years past C-Webb’s prime.. The pairing of Carmelo and Allen is the one that everyone has been waiting for. After AI finishes the year with Melo in Denver, we finally get to see if all those years of criticism about AI’s perceived selfishness on the hardwood floor were justified or not. This year, we get to see if there is a true divide between the perception of AI as a basketball player and reality.

In investing, perception also dominates the market when people don’t realize what reality truly is. Take, for example, bird flu. Bird flu has at times, whipsawed economies of Asian countries into funks due to fears of detrimental human impact that have never come close to materializing. Even though we had yet to see significant numbers of human cases that would signify a human epidemic, at times the public punished the markets as if bird flu were a human epidemic. And it still may evolve into one. But markets don’t deserve to be punished based upon perceptions that haven’t become reality. Yet they are.

Then we had e-coli and hamburger scares over a decade ago in the U.S. when hundreds of people were sickened by fast food Jack-in-the-Box burgers and several children died. There was the perception that fast-food hamburgers were not safe food, and the stocks of almost all fast-food companies suffered as a result. However, this perception soon lifted, the stocks of these companies performed well again, and this year, an outbreak of e-coli related sicknesses hit Taco Bell patrons.

Again, what is reality versus perception?

After initial e-coli fears dissipated, the next fear to hit fast-food chains was Mad Cow disease. The U.S. FDA (Food & Drug Administration) has declared U.S. beef to be Mad-Cow free but the truth is of 375 million cows slaughtered in the U.S. from 1990 to the early 200’s, only 15,000 or about 1 cow out of every 25,000 that is slaughtered was tested in the U.S. for this declaration of mad cow free beef. The truth is, again, that with such negligible testing rates, nobody really knows if U.S. beef is mad-cow free. Yet the perception is that it is. So what is the point of this blog? The point is this. Perception can change behavior for endlessly long periods of time. However, reality will drive outcomes.

For example, the perception that fast food is clean and safe among the masses will continue to drive enormous consumption of fast food all over the world. However, if e-coli and mad cow are not being properly monitored, the reality is that people will get sick and possibly die. In global markets today where stock markets have seen a straight run higher for the last couple months, the perception among the masses that the markets are going to the moon continues to drive behavior. However, reality will set in soon enough.

_________________________________

J.S. Kim is the founder and Managing Director of SmartKnowledgeU™, a comprehensive online investment course that uses novel, proprietary advanced wealth planning techniques and the long tail of investing to identify low-risk, high-reward investment opportunities that seek to yield 25% or greater annual returns.

Obviously the cognitive bias created by the recency effect clouds sound judgment and decision making. In stock markets, the recency effect is particularly strong during good markets. People remember all their winning stocks and forget about all the losers. Or if losers have turned into winners, most investors feel that there’s no way that they could be bit again by the same correction bug. The recency effect, coupled with the horrible reporting of the financial media that often incorrectly reports on the true state of the economy, causes many investors to be blindsided when corrections occur. In our current global markets, the recency effect is firmly in play.

I would bet that for 99% of investors, the great pain that was induced by the large corrections in global markets just six months ago is now a very distant memory.

Everybody loves making money, so the cognitive bias in investment psychology, due to the relative robustness of current markets, is to disregard all indicators that signify a correction is coming, because such indicators dwell below the surface where they are not seen. Therefore, an irrational euphoria fuels their beliefs that the stock markets will go higher and higher. Currently, I see the most danger in the U.S. markets, but as we know, pullbacks in U.S. markets also trigger pullbacks in other major developed markets.

Even analysts are not immune to the recency effect. On Monday and Tuesday, when many of the leading global markets pulled back significantly only to recover slightly the next day, and then even more strongly yesterday, almost every analyst reported that the pullback on Monday and Tuesday was cause for no concern. If you have read any of my prior blog posts, you know that I highly disagree with this sentiment. I’ve already discussed many of the factors that drive my beliefs, so I’m not going to discuss them again here.

In fact, I even mentioned in a prior blog post the investment that offers the best risk-reward setup to hedge against the rosy outlook of the sheep herd when so much instability lurks underneath (specifically with the U.S. markets). At certain points and time, there are many different factors that converge and diverge to control global markets. Again, it’s truly difficult to predict if all the negative factors that lurk below the surface will impact markets starting tomorrow or a month for now. With the proper type of insurance, small rises in the markets won’t hurt you hardly at all, yet being a little early to the game as opposed to being a little late is of significant benefit.

When Central Banks raise interest rates, there is always a lag before higher interest rates are absorbed by the economy, sometimes requiring a full quarter or two for the effects to come to the forefront. The same applies to when Central Banks lower interest rates. People expect economies to immediately show improvement, but the fact is that it takes several months for such policies to be absorbed by economies.

The same is true of stock markets. While all is nice and rosy on the surface, factors that will cause markets to turn have been churning for months below the surface. That’s why when sudden drops occur, for many people, these drops are as surprising as a sudden storm that forms out of a clear blue sky with not a single cloud in sight. However,just as there are significant air temperature differences between atmospheric layers that creates the storm that are not visible to the naked eye, a similar scenario plagues stock markets. The only difference is that the conditions that whip up storms in stock markets are visible with a little digging. If investors keep their ears closer to the ground, they will be able to hear the sound of an uncoming stampede in the U.S. markets.

__________________

J.S. Kim is the founder and Managing Director of SmartKnowledgeU™, a comprehensive online investment course that uses novel, proprietary advanced wealth planning techniques and the long tail of investing to identify low-risk, high-reward investment opportunities that seek to yield 25% or greater annual returns.