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Editor's note: Having been to 175 countries, our colleague Doug Casey is one of the best global investors we know... and you can bet wherever he's putting his money is off the beaten path. Read on for Doug's top ideas right now.
Saturday, July 7, 2007
It's been said that if you spend 15 minutes a year trying to figure out the direction of the economy, you're wasting 13 minutes. Of course, that's true – for at least two good, practical reasons.
One is quite obvious: It's impossible to predict the future. The second is that most successful stock speculators concentrate much more on individual stocks than on "the market." They look to find the bargains that are always present regardless of where the overall market is headed.
The general stock market's very long-term trend has always been up, simply because the ascent of man is the long-term trend, which is reflected in the rising value of shares of productive companies. Yet there are setbacks along the trend, ranging from the brief-but-brutal, such as the 90% drop in stock prices from 1929 to 1932, to centuries-long declines, such as the Dark Ages. The problem is that you can't count on the long-term trend to send you a check every month – or even every decade.
My approach to the problem is to stay out of the stock market unless I can spot a real bargain – either in an individual company or a particular sector. The same goes for bonds, real estate, commodities, and every other market.
It seems to me that, with the exceptions of resource stocks for speculation and certain foreign real estate for diversification, gold is really the only place to be at the moment. And it's likely to stay that way for years. That's because I suspect we could be at the edge of a financial/economic precipice.
My personal assets are weighted in a most unorthodox way. A "financial planner" would be horrified to see my portfolio – which, in itself, doesn't concern me, since most of them are financial morons and/or insurance and mutual-fund salesmen in disguise.
That said, the prudent person, realizing that the future is uncertain, diversifies among various asset classes – stocks, bonds, cash, real estate, commodities, gold. That's what the Permanent Portfolio fund concept, pioneered by Harry Browne and Terry Coxon, is all about. I approve of it – although I've never employed it myself. The reason is that there are many paths up the mountain, and, to make a successful climb, you have to choose the one that's suitable to your personal situation, abilities, and psychology.
Based on that, my approach to the markets tends to lead me away from deals (like CDs or blue chips) where I risk 100% of capital for a 10% possible return.
I look for deals where I might risk 10% of capital with a possible 100% return. That, in turn, means I almost never go for conventional, "safe," investments. I am attracted to volatile, depressed, unknown, and unconventional vehicles. I hate to be in things everyone knows about and is watching. How can you possibly get a deal when there are hundreds of thousands, or even millions, of other people in the same arena?
OK, so based on that, where am I now? Forgetting about some investments in private companies, online education, nanotech, software, boutique food, and a number of other areas, I'm really, really pregnant with two things: junior resource companies and Argentine/Uruguayan property.
As I've explained to International Speculator readers many times before, the resource shares are out of the "Stealth" stage, and well into the "Wall of Worry" stage. I expect that by this time next year – who knows, though? – they will be into the "Mania" stage. I'll be selling and advising you to do the same. Hopefully, we'll identify some other class of security then that's as cheap as the resource stocks were in 2000. In the meantime, I don't know a better place, in the securities markets, to be.
In years past, I've urged subscribers to buy land around Aspen, southern Spain, and New Zealand, all at much, much lower prices than they are trading for today. These have all been huge winners. I'm gone from Spain and am in the process of getting out of Aspen and New Zealand – except for personal usage, as a consumer good. I'm still buying in Argentina.
I don't consider physical gold and silver as investments or speculations. They're for savings. I continue to buy both.
To amplify, my approach to investing echoes two of the principles of warfare: Economy of Force and Massing of Strength. And right now I'm very massed in resource stocks and Argentine property. Some private deals. Considerable gold and silver. Little in the way of dollars. Nothing in bonds or public nonresource stocks.
Should you follow my lead? If I lost 95% of my net worth, it wouldn't change my standard of living. I'm not sure that's true for most people. Adjust your actions according to your tolerance for risk.
Editor's note: Doug Casey, Chairman of Casey Research, LLC., is a best-selling author, international investor and entrepreneur. He travels the world looking for exceptional opportunities in real estate and undervalued companies in the natural resource sector (precious metals, oil and gas and more).
The author of four best selling books, his Crisis Investing was #1 on the New York Times best-seller list for 29 consecutive weeks. Each month he provides subscribers to his publications, the International Speculator and the Casey Energy Speculator with his best ideas on the world’s best investments. For more information on International Speculator, click here.
Jim Rogers published his book on commodities, called Hot Commodities, in 2004.
One chapter is about lead. Rogers shows how people are fearful of lead smelters and the environmental impact they have on an area. No one has built a smelter in years. And the U.S. has only three. The youngest was built in 1969.
Then Rogers shows how the lead industry lost its two biggest markets – gasoline and paint. It's price fell into a long bear market as the lead industry collapsed. Finally, he explained – in very simple terms – why worldwide demand for lead is about to take off, thanks to car, battery, and television production.
I wish I had taken Jim's advice on lead when I read this book in 2004. Look at the chart. Lead spiked higher right around the time Roger's book comes out. It has tripled since then. Rogers likes to say he's hopeless at market timing. But with his lead call, he got it exactly right.
So what's Jim Rogers saying about lead today? Early this week, he told Reuters that lead was his least-favorite metal right now. "It doesn't mean I'm selling lead. It just means that it's probably my least favorite," he said.
Jim Rogers says agriculture investments are his favorite right now, especially sugar.
Stat of the week