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Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report
[Editor's Note: Fourteen trades. All profitable. Since launching his Geiger Index
trading service late last year, Money Morning
Investment Director Keith Fitz-Gerald is a perfect 14 for 14, meaning
he's closed every single one of his trades at a profit. And he did this
in the face of one of the most-volatile periods since the Great
Depression. Fitz-Gerald says the ongoing financial crisis has changed
the investing game forever, and has created a completely new set of
rules that investors must understand to survive and profit in this new
era. Check out our latest insights on these new rules, this new market
environment, and this new service, the Geiger Index
.]
Billionaire investor George Soros thinks the worst of the global financial crisis is behind us.
In a June 20 interview with Polish television, the Hungarian-born Soros acknowledged that this has been the most serious crisis he's seen in his lifetime, but said, "Definitely, the worst is behind us."
For those that like to interpret "Soros-speak," that's as powerful a
sign as any that one of the world's most successful investors is "going long."
But is he wrong?
On one hand, the World Bank is busy roiling the markets with recently updated figures
that project a 2.9% decline in global economic activity this year. Then
there are the signs that the "green shoots" (how I've come to detest
that term) may be more like weeds. Debt is devastating the developed
world and the once-mighty G-7 looks more like a G-1 every day.
On the other hand, I wouldn't bet against him. When it comes to
financial influence and acumen, Soros is about as powerful and
prescient as they come. He's made billions over the years speculating
on things that others simply couldn't see or, more often, didn't want
to believe. He's as iconic as he is legendary for making big bets on
market timing even if, by his own admission, he's not always right.
For the millions of investors who are tempted to interpret Soros's
comments as bullish, that admission forces me to urge caution. In fact,
my advice to proceed with caution extends to any comments that might be
made by such other investment legends as Warren Buffett, or even Soros'
former investment partner, noted author and commentator Jim Rogers.
I preach caution for three reasons:
- Despite the fact that each of these men is fabulously
successful, the typical retail investor has no idea how much money
they're betting on the upside, or what percentage of their wealth is
involved in any publicized position.
- It's not clear what - if any - protective stops are being used so you don't know whether the positions they've taken represent core portfolio holdings or speculative trades.
- These
revelations - disclosures - are usually made after the fact, which
means that investors who may want to tag along for the ride are put in
the risky position of having to make "me too" investments.
So if you're a savvy investor, what steps can you take to translate
moves being made by three of the best investors of our time into
profits of your own?
A good place to start is by taking
the time to understand precisely what drives these guys. Even though
Rogers hunts for opportunities around the world, Soros tends to pursue
investment plays involving currencies and macroeconomic trends, and
Buffett is a deep value guy, they are more alike than they are
different. That's especially true since the core elements of the
strategies these three investors use to win and profit usually run
counter to Wall Street's conventional wisdom.
Take the very concept of profits, as an example. Most people are
surprised to learn that none of these gentlemen sits around over coffee
in the morning, rolling his hands with an evil laugh as he wonders
aloud how much money he's going to make on that day. But nearly all
have gone on record at one point or another talking about the
importance of not losing money in the first place. They've also
repeatedly stressed the importance of waiting until the really
compelling opportunities develop before they put their money at risk.
Rogers, once Soros' partner at the Quantum Fund, a hedge fund that's
often described as the first real global investment fund, goes a step
further. He describes his investment process as a little like waiting
until somebody else puts money down in the corner, then "walking over
and picking it up."
Another common trait is that not one of these three investors believes
that you have to take big risks to make big money. In fact, all three
gentlemen believe, as I do, that it's how you concentrate your wealth
that matters.
This flies in the face of what Wall Street would have you believe which
is that you need to diversify your assets to get ahead. Diversification
as Wall Street practices it is a complete misuse of the math and a
proxy for an entire establishment that doesn't know what it's doing.
The thinking is that by spreading your money around willy nilly, some
of your holdings will rise in value, even as other parts of the
portfolio fall. Even so, by diversifying, Wall Street says that you
will be better off for it over the long run. Granted, there are some
instances where taking steps to "diversify" leaves you better off than
if you'd done nothing at all, but one of the critical problems with
diversification as Wall Street has practiced it is that it doesn't work
when everything goes down at once - as so many investors who had been
led to believe they were protected found out the hard way in 2000 and
again in 2007.
That's why, for example, I'm a proponent of concentrating my efforts on
a few relatively high-probability choices, especially when it comes to
trading services, such as the Geiger Index or the New China Trader, for example. It's a strategy that individual investors should consider, as well.
But what matters most is that people put the comments they hear from
these guys into perspective and think for themselves. It's important to
remember that neither Buffett, nor Soros nor Rogers care about what
other people think. That's one of their real strengths. Nor do they
care what the markets will or won't do.
In fact, none of the three - as least as far as I can tell from the research that I've done - subscribes to the "random walk" or "efficient market" theories I've mentioned as complete bunk in recent months.
The bottom line is that Soros, Buffett and Rogers have demonstrated
time and again that they'll only make a move when they're darned good
and ready - when they've done all they can to scope out the situation
at hand, and done everything possible to make sure that the percentages
are in their favor.
That, alone, is a terrific lesson for retail investors to learn. Wall
Street tries to push investors into action with advertisements that
portray "real" people making trades from their kitchens, or getting the
latest quotes on their mobile phones. They show attractive retired
couples who've achieved their dreams with big sailboats, or antique
cars, or on expensive vacations. Ignore those messages and you've
effectively elbowed aside the artificial sense of urgency that Wall
Street is trying to create.
Not only is this manufactured urgency designed to separate more of you
from your money, but they wouldn't do it if they knew that most
investors got it "right" more often than they got it wrong.
Buffett, Soros and Rogers act only when they believe the time is right.
Buffett has referred to this as waiting for the Sunday pitch. If you've
never heard that term before, it's one that dictates extreme patience
while all the spitballs, knucklers and sliders go by. You only take
action when the one pitch you know you can hit out of the park is on
its way - then you swing from the heels, giving it all your effort.
There's one final task that these guys do better than almost anyone -
and that's to keep everything in perspective. They assemble their
portfolios carefully with diligent planning, attention to detail and an
emphasis on the objectives they expect to achieve. They make
investments based on a clearly defined set of expectations and do not
hesitate to cut their losses if they find out they were wrong.
In that sense, every investment choice they make fits a specific role
in their portfolio. Nothing, if they can help it, is left to chance. So
to the extent there's any action to be taken right now, let me leave
you with one final thought.
No nation in the history of mankind has ever bailed itself out by doing
what we're doing now, which means that placing bets on a "recovery" is
really a fool's errand. On the other hand, making choices that
capitalize on the trillions of dollars now being injected into the
world's financial system is the place to be. History shows that it's
better to be generally long resources, inflation-resistant choices, and
real companies with real earnings.
Not only will these types of profit plays fall less than others if the
markets stumble and fall from here, they'll also rise faster and
farther once the capital infusions start to work their way through the
global financial system and the rebound gets under way.
And I'll bet my bottom dollar that George Soros knows it.
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