Saturday, April 24, 2010
From a reader: "How safe are any of your recommendations when I keep seeing 'stock market is overvalued' and 'could be 20% or more drop'?"
We warn our customers when we see signs the market as a whole is unattractive for new investment. We do so not because we're confident in our timing – which is almost surely going to be wrong – but because if our roles were reversed, we'd expect you to share your opinion on the market's relative value and safety.
On the other hand, people only pay for newsletters that offer advice. It's our job to find ways for you to make money investing, whether the market is overvalued or undervalued.
Right now, it seems like the market is moderately overvalued. This makes our job considerably harder. And it makes investing in stocks considerably more risky. However, you should remember this... You are unlikely to be ready and able to buy stocks at the bottom of a bear market if you're not familiar with the stocks you're going to buy.
I recommend following our letters even during periods when you're not actively putting new money to work. When stocks begin to trade at very attractive prices, you'll be educated and ready.
It is extremely difficult to find anyone to give you reliable, consistent, and prudent investment advice – especially advice that's actionable.
You want someone to review your financial plan at least once a year and give you sensible recommendations on ways to maximize your savings, investment returns, and financial safety. Unfortunately, most of the people (though certainly not all) licensed to give you advice (stock brokers, for example) have an enormous incentive to lead you astray.
While that doesn't mean they will, it is hard to imagine how they can keep their jobs and feed their families if they don't. For some insight into how the business of selling securities really works, I'd highly recommend reading Frank Partnoy's excellent book FIASCO.
I've read every book ever written about Wall Street. This one is, in my opinion, the very best. It shows you how these firms really work and why you should never take investing advice from any of them.
You ought to take a couple of simple and sensible steps immediately to ensure your advisor truly has your best interests at heart.
Start by asking your advisor how his firm makes money. Who is its real client? Does it do any investment banking? Does it raise capital for companies by selling securities (stocks, bonds) to investors? Never take advice from an employee of any firm that's in the business of selling securities. Only take advice from firms – like mine – that exclusively serve the interests of individual investors.
Next, make sure your advisor has plenty of experience and make sure he has a global view of the financial world. And look at his track record. How did his clients fare during the bear market of 1998... or 2002... or 2008? It is easy to make money in a bull market. It is tough to keep it during severe bear markets.
Finally... I'd urge you to pay close attention to how your financial advisor is paid. I would never do business with a financial advisor who was unwilling to accept a fixed fee. Paying a percentage of your assets for financial advice is tantamount to giving your advisor your wealth instead of him helping you build it.
Now, believe me, I know financial advisors will hate to read this. But imagine if you went to the Mercedes dealer, and he quoted you a price that depended on the size of your liquid assets... Or imagine checking into a hotel room and being asked to pay for the room based on the size of your line of credit.
Nothing else in life is priced the way investment management is priced – and it doesn't make any sense.
There's one place where you can get very sound, very safe, and very experienced global investment insights for less than $10 – our newest product, DailyWealth Premium. Yes, you can read DailyWealth for free – and you probably have been doing so for years.
As you know, Steve Sjuggerud is the smartest and most conservative investment writer in our group. He has successfully led investors through bull and bear markets for nearly 20 years. He has been a stockbroker. He has been a mutual-fund manager. He has been a hedge-fund manager.
Why not spend $9 per month to get Steve's investment insights – plus nearly all of our stock picks – every day? In my humble opinion, DailyWealth Premium is not only the greatest value available in the market for investment advice, it makes every other such advisory obsolete.
And quite honestly, if you're not willing to spend $9 a month to get the best advice we offer every day, you're not really serious about building and keeping your wealth. You can sign up right here. It will take less than two minutes.
Date Range:4/15/2010 to 4/22/2010
Date Range:4/15/2010 to 4/22/2010