Saturday, September 6, 2008
I strongly encourage you to read Chapter 8 of Benjamin Graham's The Intelligent Investor. It'll help you navigate times like these, when many stocks are down... some are recovering... some continue to fall... and all seem to go up and down like shot glasses at a frat party.
For the next several years, you either understand (1) how to handle stock market ups and downs and (2) how to value a business, or you will suffer.
My last two issues of Extreme Value dealt solely with the valuations of two world-dominating franchises. I didn't even recommend them at current prices. I examined their values and told readers how cheap they'd have to get to become Extreme Value recommendations.
You'd better start making a list of stocks you'll buy if and when they get cheap enough. That's the strategy that's going to kick ass for the next several years.
Last year, I said Wal-Mart was the best stock on Earth. Now, it's up 29%. The Financial Times reported this week that most retailers had a lousy August... except Wal-Mart, whose August sales rose 3%.
Signs of a market bottom? Individual U.S. stock ownership has fallen to a record low. Retail investors owned 34% of all shares at the end of 2006 – the most recent numbers. To compare, individuals owned 94% of all stocks in 1950 and 63% in 1980.
Of course, there were fewer institutional investors in 1950 and 1980. The enormous proliferation of investment funds has put us in the odd position we're in today: more funds than stocks. You have to figure most of these professional financial intermediaries are merely destroying value by charging unjustified fees.
Statistically, the mutual-fund industry must be a net value destroyer. It's simply impossible for a majority of investors to beat the market. It would be like saying everyone at the table can have the largest slice of pizza. The only way that can happen is if everyone's slice is the exact same size. Nobody loses. Nobody wins.
Americans may finally be able to afford a London vacation again. The British pound is at its lowest level in 12 years against its trading partners. And it hit a record low against the euro on Friday. The currency problems were amplified by figures showing U.K. house prices fell at their fastest pace since August 1991 and retail sales are at their lowest level in 25 years.
If you can just get the obvious stuff right, you'll make a lot of money in finance. Take the single greatest "buy" indicator of my career: In 1999, the Swiss central bank announced it would sell most of its gold hoard. That sent gold down to less than $250 per ounce. They say nobody rings a bell at the bottom of a market, but in this case, the Swiss actually did.
At the same time, the Financial Times called gold a "barbaric relic" and said it had no place in the modern world. It was the perfect moment to buy. So... What are central banks selling today? And what do the newspapers say is worthless? The Wall Street Journal points out China's biggest banks have sold half of their Fannie Mae- and Freddie Mac-backed mortgage securities this year. Hmm...
Iron ore producer Vale do Rio Doce may be headed for its best performance in a decade. The Brazilian company's stock fell 26% this year, but analysts expect the stock to double in the next year – three times the expected gains for the world's biggest mining companies, BHP Billiton and Rio Tinto.
According to the International Monetary Fund, Paraguay is the world's big winner with soaring food costs. Despite raging poverty and corruption, a subtropical climate and tons of great farmland increased Paraguay's trade balance by 12.2% of its 2005 GDP – the only country to have a double-digit increase. Soybeans are the South American country's cash crop. Paraguay is the world's fourth-largest soybean exporter.
Tom Dyson visited Paraguay earlier this year. He thinks it could be one of the best places to invest for the next 10 years. Read about it in DailyWealth.
We think biotech stocks are heading for a big rally. Steve Sjuggerud recently called the sector the "first screaming buy of 2008." And Inside Strategist editor Brian Heyliger discovered insiders agree. Heyliger found several biotech companies with insiders aggressively buying stock... Corporate insiders are bullish right now, and they're voting with dollars.
If biotech stocks aren't for you, Heyliger also recently found an energy company yielding a safe 10% and a small-cap value play that's easily worth five times today's price. Heyliger has other great picks in the pipeline. And we're currently offering his service at a huge discount. But the deadline is Monday at midnight.
Date Range:8/28/2008 to 9/4/2008
Date Range:8/28/2008 to 9/4/2008