Editor's note: Today's essay addresses topics that are unsuitable for most investors. DO NOT act on the advice below without consulting a trusted and experienced advisor. Or as they say on TV: Don't try this at home.
Saturday, February 12, 2011
Today, we're going to show you something that's not appropriate for most people and not necessary for most of our readers. We're going to tackle the challenge of how you can actually GET RICH with stocks. This is an entirely different proposition than how to effectively make more money with the money you've already got.
Today's essay is about how to turn a tiny grubstake of a few thousand dollars into millions. Yes, it's possible. A few people I know well have done it. I've wanted to share my thoughts about these strategies for a long time... and certain market conditions have compelled me to do so today. Skipping ahead to the conclusion: There are a few times the market offers you a real chance to make a fortune. I believe we might be approaching one of those moments. And I'd like you to know exactly what to do if such an opportunity appears.
There's a big "but." I hesitate to even publish these thoughts, as you can see from the warning I offer above. For some people, these ideas will end up causing a lot of harm. For most people, these ideas are unnecessary and shouldn't be acted upon.
Why? For the vast majority of our readers, getting rich isn't their investing goal. Instead, they read our newsletters to remain rich. If you're satisfied with your level of wealth and don't need to multiply your net worth by five or 10 times in the next few years – don't read today's essay. There's no reason for you to screw up your safe and steady investing results by learning how... and when... to speculate.
Legendary investment newsletter writer Richard Russell (who began writing his letter in 1958) offers the best explanation I've ever read for why the rich have such an advantage when it comes to investments:
The advantage that the wealthy investor enjoys is that HE DOESN'T NEED THE MARKETS. I can't begin to tell you what a difference that makes, both in one's mental attitude and in the way one actually handles one's money. The wealthy investor doesn't need the markets, because he already has all the income he needs...
The wealthy investor tends to be an expert on values. When bonds are cheap and bond yields are irresistibly high, he buys bonds. When stocks are on the bargain table and stock yields are attractive, he buys stocks. When real estate is a great value, he buys real estate. When great art or fine jewelry or gold is on the "giveaway" table, he buys art or diamonds or gold.
In other words, the wealthy investor puts his money where the great values are. And if no outstanding values are available, the wealthy investor waits. He can afford to wait. He has money coming in daily, weekly, monthly. The wealthy investor knows what he is looking for, and he doesn't mind waiting months or even years for his next investment...
Our newsletters cater to this audience because... let's face it... that's where the money is in our business. Rich people buy more newsletters and can afford more expensive ones. But we serve these customers for another, more practical reason: They have reasonable expectations. They're not looking to get rich on a single stock tip. All they need from us is a reasonable rate of return on their investments. All they really want from us is to do better than mutual funds and not lose their money with our ideas. Fortunately for both of us, that's not hard to do with real research (to identify great values) and a few simple strategies (like trailing stop losses).
So please... if you're already well off... close this essay. These techniques and ideas are not for you. You don't need them. On the other hand, if you really truly want to become wealthy from investing and you're willing to work at it, I believe you must know a few things...
First and foremost... you should know the areas of the stock market that can legitimately make you rich. Maybe a dozen people I know well have made their fortunes from investing – as opposed to earning them in business and using the markets to augment their already considerable wealth. They did it in one of three ways: technology breakthroughs, currency trading, or resource speculations.
Investing $100,000 in the right new biotech company or electronic widget can make you rich. I've seen people do it. Likewise, given the leverage available to speculators and the volatility of the world's currency markets, you can make an enormous fortune if you have the right information about the future values of the world's currency/bond markets. Again, I know people who have successfully made their fortunes this way. Unfortunately, I wouldn't recommend either of these approaches for you...
Why don't I recommend tech investing and currency trading to most investors? Making a fortune in technology requires an immense amount of knowledge that's fantastically difficult to acquire. I "cut my teeth" as an equity analyst forecasting (and profiting from) some of the most important technological changes of this generation. The sales letter I wrote to launch Stansberry & Associates Investment Research in 1999 explained the rise of the Internet ("There's A New Railroad Across America") and how it would replace the existing phone system using technology from JDS Uniphase. I explained how digital cameras would "pirate" Kodak's market share and how digital networks would change everything about the way we retrieve, share, and save information. I helped investors make a killing from these changes.
I knew what was going to happen with computers because I'd been actively using the technology for more than a decade. I started using e-mail in 1991. My friends and I built a primitive Internet telephone system in the 1980s. I still have many longtime friends who are personally building these technologies today.
But... my edge in these markets is no longer what it once was. About eight years ago, one of my contacts in California asked me if I wanted to invest in his new "social networking" business. I thought he was crazy... I couldn't understand why anyone would want to put his personal information on the Internet and share it with everyone. That was a huge mistake...
And that's my point: Unless you're intimately connected to the technology world, it is nearly impossible to judge whether the companies you're investing in are likely to succeed.
To a lesser extent, the same thing is true about currency trading. It's not as easy as it seems to know enough about the world's economies to judge accurately when there's a large disparity between the price of a currency and its real value.
Steve Sjuggerud has studied these factors for decades and even wrote his Ph.D. thesis on the topic. He is excellent at these kinds of speculations... But it took him 20 years to acquire the expertise and the confidence to make trades that pay off. If you want to commit yourself to studying economics and applying proven theories to real-time market developments, you can absolutely make a lot of money. I know people who've spent their lives doing this, and they've created truly massive amounts of wealth.
But I don't recommend this approach for most people. It will take you at least 10 years to truly develop the expertise required, and it offers relatively few opportunities to make great trades – maybe two or three a year. Besides, two of the best global/macro speculators in the world – Steve Sjuggerud and Chris Weber – both write relatively inexpensive newsletters. It's far more practical to read their letters and acquire their secrets easily and cheaply.
(By the way, if you don't know Chris Weber, I urge you to at least learn more about him. He is the single greatest investor/trader I know. He earned his entire fortune from speculation. I've never known him to be wrong about any major prediction... and he recently issued his 11th such major prediction. Our marketers are calling it "a prophesy," much to Chris' dismay. But he's been right so many times and made his subscribers so much money over the years that he truly does have a cult-like following. In our industry, he's a living legend.)
What do I recommend? I believe the easiest way to get rich in stocks is to study the resource markets. Geology is easy compared to technology or economics. Like economics, resources don't change much. And like technology, resources offer plenty of opportunities and boast lots of start-up companies. But unlike the other two categories, resource investing offers you far more certainty.
What do I mean? The world's population is always growing. Unless some fundamental breakthrough occurs with nanotechnology that allows us to create new supplies of the Earth's scarce resources, the price of certain key resources is sure to increase over time. And while the value of the underlying resources is extremely stable (and increasing), the equities that own and control these resources are the most volatile on the stock exchange. This dichotomy between the certainty of the intrinsic value of the resource and the volatility of the stock prices has allowed many people I know to become fantastically wealthy.
It's simple, really. You just have to learn where the world's most valuable resources sit. Then you have to learn what corporations own them. And finally, you have to remember to buy them when it seems like no one wants them.
Despite the intellectual elegance of this approach (it seems really simple, doesn't it?), it comes with plenty of risks and perils. Remember Mark Twain's definition of a gold mine: "A hole in the ground with a liar at the mouth." Lots of resource companies out there tell great stories... that aren't worth a nickel.
The second big risk is volatility in commodity prices. Freeport-McMoRan (FCX) owns the Grasburg mine in Indonesia. That is the largest and richest operating gold and copper mine in the world. The last 10 years have been the best decade ever for the price of gold. Likewise, copper has been on an almost continuous bull run. If you had owned this stock during that period, you would have made a fortune. If you had bought it on the first trading day in January 2001, you would have paid $4.71. It's trading at close to $55 today, a return of 1,060%. That's not including its dividend.
But if you had bought 10 years ago it's unlikely you'd still own the shares today. Why? I count five separate corrections of greater than 50% during the period. The hard part about resource investing isn't mental... It's emotional. Few people have the emotional makeup to withstand the volatility – let alone profit from it.
Back in the fall of 2008, during the last major correction in the resource markets, I noted in my newsletter that it was time to buy in size. How did I know?
The day before the most recent lowest closing price of the Gold Bugs Index, Karl Hill [a famously successful resource investor] shot himself in the head. I know firsthand how painful and devastating suicide can be to families and friends. I'm not celebrating these deaths, which are horrible tragedies. But like it or not, this is what happens at the bottom of a bear market. Bear markets can't end until the last bull gives up. And some of those bulls inevitably go out on their backs...
As I'll explain in this issue, this is it – this is the moment I've been waiting for my entire career. The investments you make right now will become the best investments of your entire life. – Porter Stansberry's Investment Advisory, November 2008
I was certain Karl Hill's suicide would mark the bottom of the market. And I was right. He shot himself on Saturday, October 25, 2008. The AMEX Gold Bugs Index lowest closing quote was the following Monday, October 27. The index closed at 151 that day. Its recent high was almost 600. And that's the index. Small, high-quality mining stocks have performed much better.
Assuming you followed my advice to buy gold stocks in November 2008... and you knew the right high-quality resource companies to pile into, making a fortune over the last two years would have been relatively easy. Look, for example, at ATAC Resources. In the fall of 2008, the stock was trading for less than $0.10. Millions of shares traded at this price. Recently, the stock traded for $9. If you invested $25,000 in ATAC Resources in the fall of 2008, it would be worth roughly $2 million today. I could tell you dozens of similar stories. These opportunities are real. But to capitalize on them you have to know about the resources, you have to know who owns them... And you MUST buy the stocks at the right time – when nobody wants them.
While I don't think today is a great time to pile into resource speculations, you can always find some opportunities in this market. New resources are discovered all the time. Look at our work in uncovering Northern Dynasty Minerals, which we recently closed for a 322% gain. Look at our work on ATAC Resources (up more than 500%). We find plenty of these opportunities for our subscribers. But I admit, we are not the best in the world in this market niche. I believe that title belongs to Doug Casey and his team at Casey Research...
Doug Casey is the best resource investor I know. He personally made a fortune in resource investing and still owns a huge number of resource investments. I called him the day I learned Karl Hill had killed himself. I asked Doug how he was holding up. I knew he must have held onto most of his positions, and I knew he must have been looking at some huge "paper" losses. "Porter, my portfolio looks like a medieval battlefield at dusk," Doug said. "There's carnage everywhere."
But unlike just about everyone else, Doug didn't sell. So he didn't realize the losses. Instead, he added to his positions. Today, he's undoubtedly many, many times richer because of his patience and knowledge. That's why, even though Doug sells a competing product, I heavily endorse his company's research. Let me say this more plainly, if you're planning to get rich in stocks (as opposed to merely getting richer) there's no better guide than Doug Casey.
As the End of America crisis plays out over the next few years, investors who are able to buy the world's best resources – during moments of panic – will earn massive fortunes. The big run between 2008 and now will be repeated... probably about every two or three years. Sooner or later, you'll have another "this is it" opportunity. The question is, will you know what to buy? Will you be familiar enough with the world's best resources to put your money in play while everyone else is frozen by panic? If you are, you'll make a fortune.
I asked Doug to write a special report about the best opportunities his team has identified around the world, from all their various research products (some of which cost several thousand dollars). Now... I'm sure you've seen these so-called "special reports" offered by various financial publishers – including us. Often, there's nothing really special about them. But I've read the Casey team's report. I printed a copy and I have it sitting next to the computer where I'm typing today's essay. I have a reminder in my calendar to re-read it (and update it) every 30 days. This is the guide I will use for my own investing over the next several years. It's that good.
It would cost you a fortune to replicate this work, which comes from decades of experience in the resource markets and contacts from all over the world. It features ALL of the details on Casey Research's top seven opportunities. It is the best report of its kind that I've ever read. You might wonder why I would say that as a competing publisher. Simple: It's the truth.
From a Wall Street analyst or a hedge fund, this report would cost $10,000 or so. If you were to buy all of the original Casey Research materials this report draws from, you might spend $5,000. But as a personal favor to me, Doug Casey has agreed to give a copy of this report for free to any Stansberry Research subscriber.
There's only one catch. To repay the kindness, we're asking you to take a trial subscription to Casey Research's least expensive newsletter, The Casey Report. It'll cost you $98 for a year's subscription. The normal retail price is $348 – so Casey Research is basically giving it away to our subscribers. And if you're not totally impressed with everything you get, Casey Research is happy to refund your money.
In closing, let me just reiterate two points. First, if you really want to get rich investing (as opposed to merely getting richer), the best and surest way to accomplish it is through resource investing. Second, the finest source of information about high-quality resource speculations is Casey Research. Yes, we offer plenty of good information too... but no doubt, this is a specialist's market. All Casey Research covers is resources. It is all it does. As a result, it's the best, as much as it pains me to say it. Try the letter. Read and re-read the new special report. And don't forget: When you buy matters.
Oh... one more thing... you won't find the special report I mentioned above – Casey Research's "7 Must-Own Metals & Mining Stocks for 2011" – anywhere else. Doug and his team created it specially at my personal request. You can only get it by ordering here.