Archive for January, 2007

Four Timeless Investing Tips

Monday, January 15th, 2007

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Uh oh. We’re in trouble…

I just hosted our annual Investment U seminar, where a few hundred attendees came to learn to be better investors. With a laundry list of the stars in our business, attendees picked up a lot of great investment ideas. And that might have been the problem…

While picking up a few good investment picks might be a nice thing in the short run, it’s not going to sustain you over the long run.

So in my closing remarks at Investment U, I tried to make sure attendees stayed on the right path. I turned investors’ attention back to Investment U’s “Twelve Timeless Rules of Investing.” I pointed out a few that are particularly important right now…

Timeless Rule #1: An attempt at making a buck often leads to losing much of that buck.

“Wow, Exxon sure has soared. If only I’d bought call options on the stock instead of just buying the stock, imagine how rich I’d be… I’d be retired now. Or… If only I’d bought a tiny oil exploration company instead of the big blue chip, I’d also be retired.”

It’s a nice thought… but it just doesn’t work in practice. As natural resources expert Rick Rule (http://www.gril.net) said: “Your risk is infinitely higher with a company looking for oil than a company that’s already got it.”

Everyone wants the big score. But chasing it is like playing the lottery - for a lucky few, it works. For everyone else, those lottery tickets expire worthless.

Timeless Rule #3: Cut your losers, let your winners ride.

This was a big theme of the conference. Most individual investors invest with a strategy that’s doomed from the start. They invest in a limited upside, unlimited downside way. If a stock goes up 20%, they’ll take a profit. If it goes down, they’ll hold it. This leaves them with a portfolio of losers.

We recommend investing in an unlimited upside, limited downside way. If you use something like a 25% trailing stop, then your losers get sold, and you end up with a portfolio of winners.

Timeless Rule #7: Bear markets begin in good times. Bull markets begin in bad times.

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I don’t know about you, but times are good where I live. “You can’t go wrong in real estate” is the common sentiment. Everyone is into it. And it’s the same with the stock market. The Dow Jones average is like 10% away from its all time highs. Chances are, now’s not the time to be buying stocks or real estate (on the coast of Florida, at least!).

Timeless Rule #10: Investing in what’s popular never ends up making you any money. Buy an investment when it has few friends.

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It makes sense. If you’re doing what the average guy at a cocktail party is doing, you’re doomed to average returns… at best.

In order to buy something cheap, you’ve got to buy when nobody wants it. So you can’t be buying what everybody else at the cocktail parties are buying.

There’s always something that everyone hates. I’ve been recommending gold coins and some stocks in Argentina and Israel recently. Now, those are conversation stoppers at the cocktail parties! And that’s just what I want to buy…

If a few of your neighbors are bragging about how much money they made in “X,” then chances are, it’s time to avoid “X.”

I picked these Timeless Rules out of our list of 12 because I felt they were the most pertinent rules for the attendees at our conference now. And if these reminders were good enough for attendees, they’re probably good reminders for you, too.

Good investing,

Steve

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About the Author

Investment U President Steve Sjuggerud received his PhD in International Finance and was formerly the VP of a $50 million global mutual fund, an analyst, broker, and offshore hedge fund manager. His latest book, Safe Strategies for Financial Freedom, made The NY Times Business Best Sellers list, and today his investment advice is shared with over 300,000 readers in the Investment U newsletter.

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Return On Investment Guidelines

Saturday, January 13th, 2007

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Return On Investment Guidelines
By William Cate
July 2004
[http://home.earthlink.net/~beowulfinvestments/]
[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]

Investment reward should be a function of speculation risk. The investor’s goal should be to have a reward that is a multiple of his risk.

Breakeven ROI For Startup Companies

If an angel investor is considering financing a local startup company, he needs a sevenfold Return on Investment (ROI) to breakeven. The simple reason is the U.S. Small Business Administration will tell anyone that only 15% of startup local companies succeed.

Thus, 7 X 15 = 105%, just over the breakeven point for his original investment. In my way of looking at investment, those are dreadful odds.

If a venture capitalist is considering financing a high tech startup company, he needs one hundredfold Return on Investment to breakeven. Only one High Tech startup company in one hundred makes money. Those odds are far worse.

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Yet in the past five years, hundreds of billions of investment dollars have been washed away investing in such companies. And it’s not only been the funds of the Venture Capitalists, but the additional billions of the small capital investors who then bought into the media and stock hype of these useless, non-productive companies when they went public.

Breakeven ROI for Investors Playing the OTCBB Market

Over 98% of OTCBB companies fail within five years. If you are a small capital investor and invest in one of these public companies, you need to eventually sell your shares for forty nine times what you paid for them to breakeven.

If you are a conservative investor and realize that inflation must eventually destroy the U.S. Dollar and thus you invest in Junior Resource Companies (mining, natural gas, minerals) trading in the US or Canada, you need to eventually sell your shares for two thousand times what you paid for them to breakeven. Here’s why.

A Winning/Losing Investment

The success rate of mining exploration companies is about one in every two thousand. Among the best performing mining exploration stocks of the 1990s was Bre-X. Adjusted for splits, it climbed to US$240/share. Had you paid less than ten cents a share for this stock, it would have been a breakeven or potentially profitable investment.

However, no matter what you paid, an investment in Bre-X proved to be a losing investment, because the company was a clever stock swindle. The conclusion is that anyone who invested in Bre-X shares for more than ten cents was making a losing bet.

Do As They Do

As a wise old British Investment Advisor, Harry Hone, observed to me in 1980: If the US Dollar and British Pound are about to become worthless, why are all the hard currency gurus so anxious to take paper currency for their invaluable gold?

His point was simple. Do what people do, not what they say. And, I’ve learned over the years that fads and promotions are never good investments. They can be good speculations IF you enjoy speculating and can afford the losses. There will be many of them.

Inflation and Taxes Are Factors

Annual inflation reduces your buying power. In recent years, the U.S. Government reports a 3% annual inflation rate. The business community doubles it, so that it better reflects the actual rise in living costs. Many investments are taxed, so you must adjust the inflation rate by the tax rate to find the breakeven point of any investment.

To breakeven on a US$100 taxable investment, you must earn US$10 in interest. State and Federal income taxes reduce your profit to US$6 for the year. The US$106 will buy the same amount of goods and services, as did the US$100 a year earlier. That will be an actual breakeven, not a profitable investment.

Many limited-risk cash investments do not meet the breakeven test. U.S. Passbook Bank Account interest rates are a prime example of an annual losing investment strategy against inflation and taxes.

Cash is a Position and a Good Measure of Risk/Reward

What you can earn with limited risk cash investments is a good guide to what ROI you should expect from high-risk investments. Here are a few current examples of limited risk cash positions.

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1. Cash invested in a 401k Retirement Plan. It’s in mutual funds operated by a major U.S. Insurance Company. The ROI is subject to deferred taxes. Current annual ROI is 22%

2. U.S. Dollar accounts in European Banks are paying between 11% and 15%. All these banks survived the 1929 Crash and, later, the 10,000+ bank failures of 1932.

3. Short selling OTCBB stocks has paid about a 32% tax free ROI for the past decade. With a 98+% failure rate of OTCBB companies, there is less than a 2% risk of failure in such short sales. And there are ways to mitigate that risk to well under 2% risk. The potential reward is 100% and usually takes less than three years to achieve. However, you do need a significant cash reserve position to begin this investment game.

4. California Real Estate has shown a consistent 20% annual appreciation for the past several years. When you put 20% down on a property, your annual ROI is 100%.

The GVIC ROI

The Global Village Investment Club (GVIC) risk is less than that of OTCBB short selling. If you assume the GVIC member’s profit is taken in 5.5 years, the ROI is 100%/year.

Risk/Reward

You can usually determine the risk of any investment by knowing the failure rate of firms in that industry. Conservative investments like municipal bonds have low annual failure rates. Speculative Investments, like commodities and futures trading, have high failure rates. Once you know the risk, you must adjust the reward by inflation and taxes to find the breakeven point for the investment.

Many conservative investments are bad investments. Most high-risk investments are bad investments. If more investors viewed ROI as a favorable Risk/Reward ratio, there would be fewer wealthy people dying broke. And, there would be far fewer middle income people making terrible “bets” on the stock markets.

To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website:
[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]

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About the Author

He has been the Managing Director of Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/] since 1981 and is the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]

The end of the write-up is observed by only few assiduous people. You would have got the worth of report only if you would have scanned it till the close.

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Is My Money Safe? On The Soundness Of Our Banks

Wednesday, January 10th, 2007

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