Making Money Alert
Don't Get Too Bearish
08/25/2010
Last week, I visited one of my favorite cities, San Francisco, to attend the annual MoneyShow. The mood of the show this year was quite a bit drabber than it has been in the past. I think that investors are getting tired of struggling to eke out investment gains, and I can’t say I blame them one iota. In fact, I totally understand the feelings of uncertainty facing individual investors right now, and I think that part of the reason we are seeing so much bias toward the downside is because investors have thrown up their hands in frustration and just decided to call it quits with respect to equities.
While I certainly understand the feelings of insecurity and downright fear that many investors have toward equities right now, I want to caution you against becoming too bearish. Sure, there are a lot of headwinds right now, and those headwinds must be considered when making any allocation to stocks.
Yet, if you enter into the market with a targeted focus on finding solid opportunities at a great value, you likely will benefit during the long term. Now, I am not advocating some kind of buy-and-hold strategy here, far from it. What I am advocating is that you not get sucked into thinking that the only place for your money is Treasury bonds or cash under the mattress.
There still are plenty of opportunities in emerging markets. There also are plenty of international and even domestic equity plays that continue to outpace the wider market. Just remember that if you do buy into stocks, do so with only a small portion of your total portfolio -- and always do so with a firm stop-loss order in place to protect yourself if you are wrong.
We’ve actually done both of these things in my Successful Investing advisory service. Our relatively small allocation to equities, along with our tight stop-loss strategy, helped to protect our portfolio from any significant damage.
If you’d like to find out how to protect yourself from the creeping bearish mood on Wall Street, then check out my Successful Investing advisory service today.
A Midterm Election Bounce?
What’s past is often prologue, and this Shakespearean phrase (from “The Tempest” for my fellow literary cohorts) certainly applies to financial markets. So when assessing the market’s future, it often helps to look through the lens of historical precedent.
One way to do this is to take note of key times in the political cycle to see when, generally, markets have reacted most favorably. When I did this recently, a clear correlation practically jumped up and bit me in the nose.
I found that during the first and/or second year after a presidential election, markets are most apt to make notable corrections and, according to the Stock Traders Almanac, “In the last eleven midterm election years, bear markets began or were in progress nine times.”
Interestingly, the data state, “Since 1914, the Dow has gained 50% on average from its midterm election year low to its subsequent high in the following pre-election year.” This is the key statistic for us, as we now are very close to the midterm election year low.
I suspect that when we look back on 2010, we’ll view the current climate as an outstanding buying opportunity. In fact, if historical election-cycle market data is any harbinger of the future, then 2011 could be one of the best years for stocks in a long time.
ETF Talk: Following the Trail of Frontier Markets
Seeking new frontiers with your investment portfolio? Then why not take a trip to a select group of emerging markets offering refuge from the recent slide in most global markets? It may surprise you, but stock markets in places such as Chile and Colombia actually are red hot.
One way to invest in these emerging markets and to gain diversification at the same time is to buy an exchange-traded fund (ETF) that gives you exposure to a variety of countries through a single purchase. One such fund is the Claymore/Mellon Frontier Markets ETF (FRN). This fund seeks investment results that correspond generally to the performance, before fees and expenses, of an equity index called The Bank of New York Mellon New Frontier DR Index.
This ETF normally invests at least 80% of its total assets in American depositary receipts (ADRs) and global depositary receipts (GDRs) that comprise the index. The fund also seeks to invest at least 80% of its total assets in securities of issuers from so-called Frontier Market countries. Using a low-cost indexing investment approach, the ETF tries to replicate the performance of the Frontier Index, which consists of countries that are chosen based on an evaluation of their gross domestic product growth, per capita income growth, past and expected inflation rates, privatization of infrastructure and social inequalities.
The Claymore/Mellon Frontier Markets ETF is not as diversified as many international ETFs, so just be aware that it plays clear favorites among the countries and sectors that it tracks. The geographic weightings of the fund are somewhat concentrated on three countries: Chile, 31.31%; Egypt, 14.51%; and Colombia, 12.33% (as of June 30).
Those likely are not the countries where you or most investment advisers usually focus, but for that reason they offer a way to avoid moving in lock-step with other markets around the world. Such non-correlation is a good approach to reduce the risk in your investment portfolio. The fund’s sector concentration is led by financials, with 39.87%; utilities, 14.01%; energy, 13.67%; telecommunications services, 10.53%; and materials, 9.54% (also as of June 30). The focus seems to be working, based on the chart here of the ETF’s performance during the past year.
If you want advice from me about which ETFs to buy and to sell, I encourage you to sign up for my ETF Trader service by clicking here. As always, I am pleased to answer any of your questions about ETFs, so do not hesitate to contact me. To send your question, simply click here. You may just see your question answered in a future ETF Talk.
Get Your FREE Global High-Yield Watch List
On a recent episode of my radio show, I offered listeners a FREE special report titled, “The Global High-Yield Watch List.” Now, I am extending this offer to you, the Alert reader.
If you’re an investor looking for exceptional yields -- yields north of 6% as of this writing -- then you need to get your FREE copy of this report. There are three high-yield investment categories included in the report, and my team and I at Fabian Wealth Strategies have selected carefully each fund on this watch list as a potential investment opportunity.
At Fabian Wealth Strategies, we take your high-yield portfolio very seriously. In fact, we specialize in actively managing both income and growth portfolios. If you want us to assess your portfolio, give us a call at 800/391-1118 and we’ll schedule you for a FREE portfolio analysis. This offer is available for goal-oriented investors with more than $250,000 in their investment portfolios.
NOTE: Fabian Wealth Strategies is a SEC registered investment adviser, and is not affiliated with Eagle Publishing.
Radio Show Update: I Left My Heart in San Francisco
Last week’s radio show was all about secrets. Well, more specifically, it was about the seven secrets that ETF investors can use to maximize gains and minimize risk. If you didn’t get a chance to listen to the show, then don’t worry. As an Alert reader, you have FREE access to my Radio Show archive, and all you have to do is go to the website and listen for yourself, at your convenience.
This week, I’ll be telling you more about my recent trip to San Francisco for the annual MoneyShow. I’ll be discussing the overall mood of the show, and why I think there’s a little too much bearishness out there. We’ll also be recapping the current market flux and what it means for stocks and bonds going forward. Oh, and as always, we’ll be taking your phone calls.
To listen to the show live each Saturday morning from 10 a.m.-11 a.m. Pacific Time, just go to our website.
On the Root of Money
“Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce.”
--excerpted from “Francisco’s Money Speech” in Ayn Rand’s “Atlas Shrugged”
It’s often said that money is the root of all evil, but as novelist/philosopher Ayn Rand so uniquely points out in “Atlas Shrugged,” considered her magnum opus, “Have you ever asked what is the root of money?” Through one of the book’s heroes, Francisco d’Anconia, we learn the true nature of the root of money -- namely that it is the byproduct of those who exercise their minds in the valiant quest for productive achievement.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars or anything else. Click here to ask Doug.
P.S. My publisher, Eagle Financial Publications, is now on Facebook. Click here to see our page and be sure to become a fan when you get there.