Where to put $10,000 today... Why most investors are terrible... The crowd is avoiding stocks... Buying blow-off tops... Why George Soros likes bubbles... One of our highest-conviction ideas...
If I handed you $10,000 in cash today, where would you put it?
You'll read about what we would do with it below... But first, think of the answer for yourself.
Market psychology is a funny thing... Individual investors are overwhelmingly prone to do the exact wrong thing at the exact wrong time.
According to a 20-year study (from 1992-2011) by asset-management giant BlackRock, the average individual investor earned 2.1% a year. Meanwhile, stocks went up 7.8% per year over the same period.
The reason for the underperformance is simple: Most investors can't master their emotions. They're driven by fear and greed... Unfortunately, the herd's fear kicks in after stocks have fallen (a good time to be buying)... And greed takes hold at market tops (a good time to be selling).
In short, most folks are terrible at timing the market. Consider this... Heading into March 2000, right around the time when the stock market's bubble burst... mutual funds saw record net inflows – $102 billion in the first quarter of that year.
That's why the biggest gains are made by going against the crowd... being a contrarian.
So what is the herd doing today? Where would the Average Joe put $10,000 to work today?
According to a recent survey by research firm Gallup, only 41% of respondents would invest that $10,000 in the stock market. Meanwhile, 36% say they would keep it in cash.
The vast majority of respondents are nervous about the market today. Of those polled, 11% are "extremely nervous," 34% are "somewhat nervous" and 38% are "a little nervous." Plus, only 7% of respondents were aware the stock market rose 30% last year.
You can see the full outline of the survey here.
Why do we care where these people would put $10,000?
Well, at a market top, I would wager that more than 41% of people would want to put that money in the market. Fewer people would be nervous. At times, there's a near euphoria... Investors feel invincible and think they'll get rich overnight in the market.
Remember... a record amount of money went into equity mutual funds just before the March 2000 bubble burst. Clearly, we're not there yet...
Still, our analysts agree this bull market is closer to the end than the beginning. Meanwhile, the Federal Reserve is still keeping interest rates near record lows and printing more money... It's forcing people to put their money into riskier assets like stocks.
True Wealth editor Steve Sjuggerud thinks we'll see the biggest gains at the very end of the bull market, a so-called "blow-off top." In late 1999, the Nasdaq soared about 80% in five months before peaking in March 2000.
Steve is hanging around for those huge gains. And he isn't the only investor who likes to ride a bull market until the blow-off top...
Billionaire hedge-fund manager and trading legend George Soros also understands the huge money you can make toward the end of a bull market.
In 2009, he said, "When I see a bubble forming, I rush in to buy, adding fuel to the fire... That is not irrational."
Soros used this strategy with gold in 2010 (the metal was up 40% from the previous year)... At the time, he was calling gold the "ultimate asset bubble." The precious metal soared from $1,200 an ounce to $1,900 before pulling back and settling in around $1,300 today.
Bubble talk aside, we return to the original question: Where would you put $10,000 today? We hope you'll consider the idea we're sharing today – it's one of our highest-conviction recommendations...
We rarely find an idea this compelling. When we do, you should take notice... After all, our job is to bring you solid investment recommendations.
Earlier this year, Extreme Value editor Dan Ferris found one of the best investment opportunities he has ever seen. It's a small, little-known stock... This company is managed by some of the best operators in the business... It profits from a handful of different commodities (gold, uranium, coal, potash, etc.)... And as I'll explain in a moment, this company's earnings are about to explode. Plus, we think it will soon initiate a big dividend...
Dan calls it "by far one of the best opportunities in the natural resource sector I've seen in my entire career."
The company Dan is talking about is a resource royalty company – one of the best business models in the world... Several smart geologists and investors buy up the "royalty rights" to some of the world's most productive and lucrative mines.
But the company doesn't handle any of the production (the capital-intensive part of the business). It simply receives royalty payments as resources come out of the ground.
These companies can invest small amounts in various projects and produce huge returns... And the money continues to pour in long after the initial investment.
Ten years ago, for example, Dan's favorite royalty company paid a little less than $14 million for a small royalty on a nickel mine. The company has already received $30 million in royalty income from that investment... The investment has paid $3 million (more than 20% the initial investment) over the past 12 months alone.
That's why Dan says buying royalty companies is "the best way to invest in commodities."
Here's the kicker...
This company recently completed a deal that's going to pay huge royalties in the future... Dan says the deal will boost its revenue 10-fold. And he is 100% certain the company will start paying a "substantial" dividend in the next couple years... He thinks it will be a double-digit yield based on today's share price.
Considering today's yield-starved market, once word gets out that this natural resource firm is paying a fat dividend, shares will skyrocket.
Right now, this stock is a great value. But we doubt it will stay down for long. If you're looking for a way to diversify your money across a portfolio of different commodities and purchase a stock before it starts paying out a massive dividend, consider following Dan's buy recommendation.
Again, this is one of our highest-conviction trades today... We implore you to watch the presentation we created to further explain the situation. You can watch it by clicking here.
New 52-week highs (as of 8/19/14): Apple (AAPL), Automatic Data Processing (ADP), Brookfield Asset Management (BAM), SPDR S&P BRIC 40 Fund (BIK), Consolidated Tomoka (CTO), CVS Caremark (CVS), Dolby Laboratories (DLB), Flinders Resources (FDR.V), Integrated Device Technology (IDTI), KLA-Tencor (KLAC), Leggett & Platt (LEG), Microsoft (MSFT), PowerShares QQQ Fund (QQQ), ProShares Ultra Technology Fund (ROM), RPM International (RPM), ProShares Ultra Health Care Fund (RXL), Steel Dynamics (STLD), Skyworks Solutions (SWKS), and Union Pacific (UNP).
In today's mailbag, we continue the discussion of the value of gold... and another reader writes about his S&A-related trades. Send your thoughts to feedback@stansberryresearch.com.
"Dear Porter: I have been a Stansberry's Investment Advisory reader for at least 4 years and a Flex Alliance member for 3 or so and am quite pleased. I have also sampled most other newsletters in the universe and found Extreme Value, Income Intelligence, and Stansberry's Investment Advisory to be among the best. Regarding Stansberry's Investment Advisory: you make a lot of great picks on the long side and I have done extremely well with many. I have even combined the put selling strategy with technical analysis to make a regular income on WPX, even though the Stansberry's Investment Advisory is officially out of it. Selling the $17.50 puts several times on WPX has been a wonderful thing. So thank you. Now that WPX appears to be fulfilling your initial expectations of much higher prices, the $17.50 put strategy will have to be rethought.
"On the short side, I have also done some technical analysis to gauge my entries/exits, and although I am out of TSLA with a slight loss, I did not get hammered (I actually sold, then covered at a profit, then sold higher and covered at a slightly larger loss.) I did a similar thing with GME and am still in it at a slight loss. What I am driving at here is to suggest that you utilize your best technical analyst on short sales and possibly go to a 2 stage entry and possibly trade part of the position more than once. At least till the bull dies. Thanks for all the great picks and strategies." – Paid-up subscriber Carl Johnson
"With regards to the inflation protection of gold in the previous discussion, it would have been more accurate to include the fact that you could only have held that gold until 1933 when the US confiscated all gold coin, bullion, and certificates. Another historical reference to why some of your holdings need to be outside the greedy reach of the Federal and State governments. Add a second passport, and you will have options." – Paid-up subscriber David Jimenez
"In response to Ross Slaneff comments in the Digest today- If I am around in 2114, I think we will have come far enough that something else will be serving as 'money' and mining a metal from the ground will be obsolete. Perhaps Martian rocks??? I do agree it will not be fiat currency." – Paid-up subscriber David Bailie
Regards,
Sean Goldsmith
August 20, 2014
Indian stocks are dirt-cheap... and could explode higher...
In today's Digest Premium, hedge-fund manager Rahul Saraogi explains why Indian stocks are a great value today... and what specifically to look for when investing in individual companies...
To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.
Indian stocks are dirt-cheap... and could explode higher...
Editor's note: In today's Digest Premium, hedge-fund manager Rahul Saraogi explains why Indian stocks are a great value today... and what specifically to look for when investing in individual companies...
The last couple of years for Indian stocks have been tough. But things seem to be turning around. So things in India are looking pretty good now. And from my vantage point – things I (Rahul Saraogi) look at, the companies I go out and meet – things are not expensive. In fact, it's the opposite. Things are extremely cheap.
In the last six years, Indian companies' nominal GDPs were at 15%. So, companies have doubled or tripled in size since 2007. And I am seeing companies with valuations at 15-year lows. It's not just exciting that valuations are low, but we're also seeing two strong tailwinds in politics and the economy. We're seeing companies at 0.4 times book value and four times earnings generating 20% returns on equity.
One of the challenges is that these companies are not that small. I'm finding value in companies that have $1 billion to $2 billion market caps. These are pretty large companies in the context of India. On occasion, the market does become illiquid. But as things stand now, we don't have any difficulty buying or selling shares right now.
I recently wrote a book called Investing in India: A Value Investor's Guide to the Biggest Untapped Opportunity in the World. One of the things I address in the book is the issue of corporate finance and capital allocation.
A good friend recently told me, "Indian companies are cheap. The owners of the companies and the management will do well. I just don't know if I will do well as a minority shareholder." One of the most important things – and I mention this in my book – is to understand these companies' governance. It's important to know which companies treat minority shareholders fairly and which don't. My job in India is to sift through these companies and to separate the ones that do it right from the ones that don't.
Another important attribute is how a company allocates capital. You want to invest with a management team whose goal is to maximize shareholder return. That's not always a given, even in the U.S. or other developed markets.
The next thing we look for is a large asymmetry. Asymmetry is a cousin to margin of safety. You want to buy something that has a big discount to its intrinsic value. Asymmetry ensures that it has a lot of other things going for it on the upside. Not only do you want to protect the downside, but you want to keep the upside large. The more asymmetric an opportunity is, the higher it is ranked in our portfolio.
There is opportunity in every sector in India. GDP is growing at double-digit rates. Half of the 1.2 billion population is under the age of 25. There are good management teams and good companies in media, telecom, infrastructure, manufacturing, paper, sugar, agriculture, you name it.
A well-run company may perform disproportionately to the growth of its sector or industry. When you have tailwinds where GDP is growing at double-digit rates, good companies and good management teams will grow much more than that.
– Rahul Saraogi
Editor's note: On Saturday, August 23, Rahul will share more of his thoughts on the upside in Indian stocks at the S&A Conference Series event in Los Angeles. Also presenting are Small Stock Specialist editor Frank Curzio, S&A Global Contrarian editor Kim Iskyan, and 3D Robotics cofounder Chris Anderson, among others. Plus, Porter will debate one of electric-car maker Tesla's cofounders... you won't want to miss it.
Unfortunately, it's too late to buy your ticket. But we'll be streaming the event so you can watch it live from your computer. And if you act now, we'll throw in access to our final event of the year in Nashville... where former presidential hopeful Ron Paul will headline. Click here to learn more.
Indian stocks are dirt-cheap... and could explode higher...
In today's Digest Premium, hedge-fund manager Rahul Saraogi explains why Indian stocks are a great value today... and what specifically to look for when investing in individual companies...
To continue reading, scroll down or click here.