This weekend with friends, while reflecting on PROFIT CONFIDENTIAL and my writings (I didn’t know I had so many colleagues reading these pages), I found there was a common denominator as to why people read my columns.
In a nut-shell, it seems I keep people focused on the longer-term trend, on common sense, keeping them away from the short-term actions they would otherwise undertake as they react too quickly to news and the actions of the herd.
Listening to CNBC, your stockbroker or even the financial newspapers, and investors to tend to react. However, the markets move in identifiable long-term trends. Unless you are a professional trader, you cannot make money with short-term in-and-out trading. Retail investors (us) are better off taking positions in established long-term trends and riding them.
Here are three examples:
I’ve been pushing gold-related investments since 2002. Many editorials have been written in newspapers by reporters and analysts telling us why the rise in gold prices will not continue, how it “doesn’t make sense.” And, whenever there is a five-percent correction in gold prices, the calls start coming in on my line, asking if the bull market in gold is over and if profits should be taken.
If you have been reading PROFIT CONFIDENTIAL since 2002, when gold was trading at $300.00 per ounce, you know I’ve been keeping my readers focused on the long-term bull market in gold, suggesting that any weakness in gold prices should be looked upon as an opportunity to buy more. Yesterday, gold closed at a four-week high: $1,543.20 an ounce.
In late 2004 and right through 2005 I started “screaming” in these editorials for my readers to get out of the housing market. I was actually ridiculed by people in Florida and California who told me I didn’t know what I was talking about; that property prices would continue to rise.
Investors in housing and housing stocks lost their common sense, and that’s where I come in: to bring people back to reality. Of course (and it’s just history now), the housing bubble burst big-time. Yesterday, I reported that housing prices in 20 major American cities are at their lowest price level since 2003 (source: S&P/Case-Shiller Index) with no bottom in sight.
Finally, in March of 2009, when no one wanted to buy stocks, when black clouds lay over America, I told my readers to jump in with both feet and to hold those feet in stocks. Some major market indices have gone up 100% since then. It was only at the beginning of 2011 that I started suggesting the bear market was getting old and tired and that, while I expect more upside from the market, the remaining upside rewards might not be worth the risk for investors.
Michael’s Personal Notes:
Giving further credence to my concern over the economy, ADP Employer Services reported yesterday that the U.S. had added much fewer workers in May than previously forecast. The market tanked on the news.
In addition, 10-year U.S. Treasuries fell below three percent yesterday for the first time in 2011, as investors fled stocks to U.S. Treasuries on the fear that the U.S. economy is cooling.
Funny thing these U.S. Treasuries…you can run to them, but you’re damned if you, damned if you don’t. Investors have nowhere else to flock to from stocks when they get nervous except Treasuries. On the other hand, the actual inflation rate is more than the yield on the Treasuries. And, in the long-term, inflation will make Treasuries the wrong place to be.
Follow-up: In February and March of this year, we ran ads for a service we publish called The Lombardi Letter for Wealth Preservation and Growth. In the ad (actually a video presentation), I made the bold prediction that the stock market would start to collapse on May 2, 2011, and my readers could profit from that collapse by shorting a series of stocks we dislike. Luck was on my side. Since May 2, 2011, the Dow Jones Industrial Average has tumbled over 500 points, a “shorter’s” heaven.
Where the Market Stands; Where it’s Headed:
Not a good day to own stocks Wednesday, with the Dow Jones Industrials posting one of its worse days of this year. But I doubt the bear market rally is over: It would be too easy if it was.
Remember, the stock market still has a number of important things going for it: The number of stock advisors who are bullish are declining rapidly (the stock market usually does the opposite of what is expected of it), QE3 is likely around the corner, monetary policy is incredibly accommodative, corporate profits are still strong, corporations are sitting on a record amount of cash, and there are not many alternatives to stocks but depressed Treasury yields.
As I have been writing for weeks, the upside reward for owning stocks may not be worth the risk. And we got a taste of that yesterday. However, I don’t think the bear market rally has given up just yet. One day’s market action does not create a new trend.
What He Said:
“Why Google stock will go higher: Most investors in Google, surprisingly, are retail investors. And that’s why the stock can go higher—because only 20% of the stock is owned by institutions. If the institutions jump in and buy Google, the stock will certainly move higher.” Michael Lombardi in PROFIT CONFIDENTIAL, June 2, 2005. Michael recommended Google stock as a buy on June 2, 2005, when the stock was trading at $288.00. On November 5, 2007, when Google reached $700.00 U.S. per share, Michael advised his readers to sell their Google stock and to put the proceeds into gold-related investments. Coincidently, gold bullion was also trading at about $700.00 per ounce in November 2007. Michael’s message was to trade each $700.00 share of Google into $700.00 of gold, because he saw gold as a much better investment.