Saturday, May 27, 2017

Contrarian Investment Idea – A SECRET THAT WALL STREET DOESN’T WANT YOU TO KNOW!

Newspapers make money by printing scary stories.  You read a lot about investing advisors who are extremely bullish or bearish and much less about the ‘steady-as-she-goes’ advisors unless there is a quirky angle.  War here; death there; next years’ mega crash in stocks or gold, corruption, rape, that is the stuff that sells newspapers but does it really make you rich?
Possibly but not likely. Many of the investment expert’s will tell you that ‘Buy&Hold’ is passé and that it won’t make you rich. Well, think again! How do these guys make money?  Right by selling you stocks or by scaring you into buying their services. If they were really so successful then why are they trying to use your money when they should be already filthy-stinking rich?  Not all these ‘gurus’ are no good, some may actually be excellent asset managers.  But real investing is not exciting; the best investments are boring; thousands of books have been written about this.  Investing is about buying money generating assets and if you think that Canada’s banks or companies like Disney or GE are unprofitable and not making money over the next 25 years than please, please… give those shares to me. A house, ownership in a business, investing in debt, those are all assets that overtime make you a lot of money.  The simplest way and one of the safest is buying a government bond that pays you a certain interest rate over time.  Say you buy a $10,000 bond that pays 7% interest annually for 25 years. That is 25 times $700 over 25 years or $17,000 plus your $10,000 back after 25 years. Oh, you nearly tripled your money!  So what if you reinvested the interest that you collected at 7% as well?  Then you invest at a compound interest rate of 7% and your original $10,000 would give you $54,275 after 25 years
 So if you saved for 5 years $10,000 every year following your 25th birthday and then did nothing but invested at 7% compounded you’d have $312,117.49 at age 60. Early retirement? Now there are things like taxes but you can take care of that with TSFAs and RRSPs.  So, there is a perfect retirement plan for you young bucks!  So why is this so darn difficult?  It isn’t, but you do need a bit of self discipline and set your priorities. For example: at 25 you tell your self: “my first $50,000 is for retirement; the second is for a BMW. The rest of my life’s earnings are for living and bringing up a family.” Done!  If that is what you want.  You don’t have to read this darn blog ever again. Oh… Freedom.
You don’t need to be right about each bull and bear market. As pointed out in earlier (or better in many earlier) postings: Don’t panic during a bear market and sell; just hold on and your ‘losses’ will be recouped over the next few years. If you use your cash to buy more during that down turn you will earn a bit more but not a lot more. Yes, from time to time you may win a investment lottery ticket. What if you invested $10,000 in the 1960s with Warren Buffett? Today it would be worth roughly $100 million! Now there is a lottery win for you!  We all come across such an opportunity from time t time. The art is to recognize it and grab the opportunity. Most of us won’t out of fear - often just when risk is lowest.
So, here I want to help you in becoming a contrarian investor and hit from time to time a home run.  Have a core portfolio with stocks of companies that pay every year increasing dividends and that are going to be around for the next 100 or so years.  I am talking Canadian Banks, Walt Disney, GE, Microsoft, AT&T and many others.  Put $10,000 in each of them and 25 to 30 years later you’ll be a millionaire. Then play the investment lottery: try investing opposite to the news headlines.  Now you can make investment home-runs!  So if the newspapers love Facebook, just run away. If the newspaper says “This is the big bull market’, start accumulating cash.  If the media say that we are in a financial crisis and that stocks will never recover, you know it is time to add stocks to your core portfolio.   If the media says: “Oil prices will fall or stay in a trading range for the next 10 years”, you know it is time to buy good balance sheet oil and gas companies.  Now, these companies, if not Shell or Exxon Mobil like, should never be part of your core portfolio.  After making a good profit – say 100% sell part and let the rest run until the next peak then use trailing stops to get out.

Well if this works and you become wealthy or better if you become very wealthy, remember in your will this little obscure investment blog that provided you this deep investment truth… no I should say ‘THIS SECRET THAT WALL STREET DOESN’T WANT YOU TO KNOW!”  How is that for a marketing title?

No comments:

Post a Comment