Saturday, August 23, 2014
If I handed you $10,000 in cash today, where would you put it?
You'll read about what we would do with it below... But first, think of the answer for yourself.
Market psychology is a funny thing... Individual investors are overwhelmingly prone to do the exact wrong thing at the exact wrong time.
According to a 20-year study (from 1992-2011) by asset-management giant BlackRock, the average individual investor earned 2.1% a year. Meanwhile, stocks went up 7.8% per year over the same period.
The reason for the underperformance is simple: Most investors can't master their emotions. They're driven by fear and greed... Unfortunately, the herd's fear kicks in after stocks have fallen (a good time to be buying)... And greed takes hold at market tops (a good time to be selling).
In short, most folks are terrible at timing the market. Consider this... Heading into March 2000, right around the time when the stock market's bubble burst... mutual funds saw record net inflows – $102 billion in the first quarter of that year.
That's why the biggest gains are made by going against the crowd... being a contrarian.
So what is the herd doing today? Where would the Average Joe put $10,000 to work today?
According to a recent survey by research firm Gallup, only 41% of respondents would invest that $10,000 in the stock market. Meanwhile, 36% say they would keep it in cash.
The vast majority of respondents are nervous about the market today. Of those polled, 11% are "extremely nervous," 34% are "somewhat nervous," and 38% are "a little nervous." Plus, only 7% of respondents were aware the stock market rose 30% last year.
You can see the full outline of the survey here.
Why do we care where these people would put $10,000?
Well, at a market top, I would wager that more than 41% of people would want to put that money in the market. Fewer people would be nervous. At times, there's a near euphoria... Investors feel invincible and think they'll get rich overnight in the market.
Remember... a record amount of money went into equity mutual funds just before the March 2000 bubble burst. Clearly, we're not there yet...
Still, our analysts agree this bull market is closer to the end than the beginning. Meanwhile, the Federal Reserve is still keeping interest rates near record lows and printing more money... It's forcing people to put their money into riskier assets like stocks.
True Wealth editor Steve Sjuggerud thinks we'll see the biggest gains at the very end of the bull market, a so-called "blow-off top." In late 1999, the Nasdaq soared about 80% in five months before peaking in March 2000.
Steve is hanging around for those huge gains. And he isn't the only investor who likes to ride a bull market until the blow-off top...
Billionaire hedge-fund manager and trading legend George Soros also understands the huge money you can make toward the end of a bull market.
In 2009, he said, "When I see a bubble forming, I rush in to buy, adding fuel to the fire... That is not irrational."
Soros used this strategy with gold in 2010 (the metal was up 40% from the previous year)... At the time, he was calling gold the "ultimate asset bubble." The precious metal soared from $1,200 an ounce to $1,900 before pulling back and settling in around $1,300 today.
Bubble talk aside, we return to the original question: Where would you put $10,000 today? We hope you'll consider the idea we're sharing today – it's one of our highest-conviction recommendations...
We rarely find an idea this compelling. When we do, you should take notice... After all, our job is to bring you solid investment recommendations.
Earlier this year, Extreme Value editor Dan Ferris found one of the best investment opportunities he has ever seen. It's a small, little-known stock... This company is managed by some of the best operators in the business... It profits from a handful of different commodities (gold, uranium, coal, potash, etc.)... And as I'll explain in a moment, this company's earnings are about to explode. Plus, we think it will soon initiate a big dividend...
Dan calls it "by far one of the best opportunities in the natural resource sector I've seen in my entire career."
The company Dan is talking about is a resource royalty company – one of the best business models in the world... Several smart geologists and investors buy up the "royalty rights" to some of the world's most productive and lucrative mines.
But the company doesn't handle any of the production (the capital-intensive part of the business). It simply receives royalty payments as resources come out of the ground.
These companies can invest small amounts in various projects and produce huge returns... And the money continues to pour in long after the initial investment.
Ten years ago, for example, Dan's favorite royalty company paid a little less than $14 million for a small royalty on a nickel mine. The company has already received $30 million in royalty income from that investment... The investment has paid $3 million (more than 20% of the initial investment) over the past 12 months alone.
That's why Dan says buying royalty companies is "the best way to invest in commodities."
Here's the kicker...
This company recently completed a deal that's going to pay huge royalties in the future... Dan says the deal will boost its revenue 10-fold. And he is 100% certain the company will start paying a "substantial" dividend in the next couple years... He thinks it will be a double-digit yield based on today's share price.
Considering today's yield-starved market, once word gets out that this natural resource firm is paying a fat dividend, shares will skyrocket.
Right now, this stock is a great value. But we doubt it will stay down for long. If you're looking for a way to diversify your money across a portfolio of different commodities and purchase a stock before it starts paying out a massive dividend, consider following Dan's buy recommendation.
Again, this is one of our highest-conviction trades today... We implore you to watch the presentation we created to further explain the situation. You can watch it by clicking here.
Date Range:8/14/2014 to 8/21/2014
Date Range:8/14/2014 to 8/21/2014