The Nearly Infallible Cocktail-Party Indicator
"What's wrong with Steve?" I bet people have said about me many times.
Why is he always talking about some ridiculous sounding investment?"
That's the cocktail-party crowd... I just can't win.
But cocktail parties are where I learn where NOT to invest right now. They're the perfect "contrary" indicator. You can, and should, use the cocktail-party indicator to save your investments.
In short, you can take whatever investment idea EVERYONE is talking about, and you can just about guarantee that it'll be substantially lower within five years. The thing is, when everyone is talking about an investment idea, you can be just about sure it's run its course. It's time to think about moving on...
For example, in 2005, all the talk at the cocktail parties was real estate. "You can't go wrong in real estate," everyone agreed. "Real estate has never had a down year."
Usually, I'd keep my thoughts to myself. Sometimes I might say "What about Japan? Just like the States, it barely had a down year from 1950 to 1990 – then it fell for 17 straight years." But people would look at me like I was from Mars. I shouldn't have opened my mouth.
It gets worse... Some folks would then ask me, "So what are you buying?"
"Oh, I'm buying gold," I'd say. The look I usually got was an involuntary wince of pain. No words were needed.
If they had listened, they would have made triple-digit returns. After doing this for a long time, I've learned the stronger the wince, the greater your potential returns.
The thing is, the cocktail-party cycle repeats... over and over again. It becomes – dare I say it – easy. You can almost learn what to buy... and definitely what to sell, simply from paying attention to the cocktail-party crowd.
As one more example, back in 1998-1999, young people were going after the dot-com jobs. And older folks were buying shares of anything with "com" in it. It was the "new economy," and everyone was entitled to get rich. But in the January 2000 Annual Forecast issue of the Oxford Club newsletter, I told readers in no uncertain terms: "We are at the peak of most likely the greatest financial mania that will ever be seen in our lifetimes and quite possibly the greatest ever witnessed."
So when I started my True Wealth newsletter in 2001, we went the exact opposite of dot-coms... In the very first issue, we started buying real estate. Everything in real estate was cheap. It was completely ignored. And yet the uptrend had begun. So we bought stocks that owned commercial real estate, apartments, shopping centers, you name it.
Once again, I don't think many people took us up on our advice. They wanted "tech" not "stuff." They wanted what had already gone up over the last few years. But "tech" was expensive. "Stuff" was cheap. And subscribers who took my advice made triple-digit profits on several real estate stocks.
Back then, commodities also seemed easy to me. We need commodities – agriculture, metals, oil, etc. Yet commodity producers hadn't increased their capacity in more than 20 years.
We had a simple situation... Demand was growing exponentially. And with no new mines in 20 years, supply couldn't grow. Yet prices were low. It was Economics 101, prices were about to go nuts.
"Commodities always go down in price," I was told. "You never make money in commodities." This time, it wasn't just the cocktail-party crowd that told me how ridiculous that idea was. Academics told me I was ridiculous. And so did money managers.
Yet when people tell me "you never make money in commodities," I see it in a different way... It tells me that nobody is looking at them – and that there might be all kinds of opportunities that haven't been looked at yet. I start to think about buying them.
My True Wealth readers made great returns in various commodity-related investments in the following years. But in 2008, commodities were finally becoming legitimate.
I heard one investment advisor on CNBC say, "You've got to have 20% of your assets in commodities. Me, personally, I have 40% of my assets in commodities."
Oh no! We were coming full circle. Commodity prices went on to crash soon after.
The cocktail-party indicator is the first nearly infallible warning sign that a big trend is nearing an end. It's accurate, and you don't need any particular skills (other than willpower) to follow it.
Remember this indicator. It'll save you a fortune by keeping you from following the crowd.
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