I want to post about a subject that frequently appears in discussions online in recent years (especially over the past several months). It’s about authors and their sheep followers that continue to predict these great depressions and crashes. I am not saying that it can’t happen but their readers sure make them rich by reading most of their negative crap. What happened to the predictions from the books in the late 1970’s and early 1980’s? Read the book titles from the 1970’s and 1980’s and then read the book titles from today (listed below). Are you seeing a pattern? I didn’t go back to the 50’s or 60’s but I could find similar titles and then many more in the 1930’s. My point is: don’t believe everything you read and stop panicking by reading books from theorists (talkers, not doers). I must give credit to many of the books listed by Martin Schwartz and his book Pit Bull. I enjoyed reading it over my last vacation as it was very funny and educational (not a “how to” book).

Theorists make money selling books that sell fear while investors and entrepreneurs make money by following their ideas with money and hedging against a possible crisis. I learn from history and history shows us that these “crisis” books will always sell during tough times. Readers eat up this garbage because most people are trapped in the rat race working their asses off just trying to stay afloat. Their attitudes are typically piss-poor and they love to read about huge negative events (especially a crash that may hurt others).

Also notice how the same authors try to write books when the market starts to go back up again. For example, Howard J Ruff was writing about the crisis in 1979 through 1982 but then started to write about how to invest as a serious investor in 1987. Guess what: he was on the wrong end of the crisis in 1982 (the tail end) and the wrong end of the boom in 1987 (crash later that year). These “fools” are always late to the party and sell millions of books to the “average” person that engrosses themselves in fear!

These people, both now and then are not very accurate, they sell garbage in my opinion and I ignore it at all costs! I just hope many of you can do the same and make decisions based on what “YOU” see and not based on book sellers! Invest for now, ignore the garbage but be prepared for worst case scenarios by taking necessary steps but don’t radically change your life based upon the writings of a few authors that probably don’t invest themselves.

Books from the Past:
Crisis Investing: Opportunities and Profits in the Coming Great Depression by Douglas Casey (Hardcover – Jul 1980)

Crisis Investing for the Rest of the 90’s by Douglas Casey (Hardcover – Oct 1993) – WOW was this wrong in 1993!

What the smart money is betting on in 1985: By Doug Casey by Douglas R Casey (Unknown Binding – Jan 1, 1985)

The Coming Currency Collapse and What You Can Do About It by Jerome F. Smith (Hardcover – Sep 1980)

Profits from silver by Jerome F Smith (Unknown Binding – 1983)

How you can profit from the coming devaluation by Harry Browne (Unknown Binding – 1970)

You can profit from a monetary crisis by Harry Browne (Unknown Binding – Jan 1, 1975)

How to Prosper During the Coming Bad Years – A Crash Course on Personal and Financial Survival by Howard J. Ruff (Mass Market Paperback – 1979)

How to Prosper in the Coming Bad Years by Howard J. Ruff (Mass Market Paperback – Jul 1981)

Making money: Winning the battle for middle-class financial success by Howard J Ruff (Paperback – 1986)

Howard Ruff’s crash course for the serious investor by Howard J Ruff (Unknown Binding – Jan 1, 1987)

How to Prosper During the Coming Bad Years by Howard J. Ruff (Paperback – April 1984)

Books from Today:
The Coming Collapse of the Dollar and How to Profit from It : Make a Fortune by Investing in Gold and Other Hard Assets by James Turk and John Rubino (Hardcover – Dec 28, 2004)

The Coming Economic Collapse : How You Can Thrive When Oil Costs $200 a Barrel by Stephen Leeb and Glen Strathy (Hardcover – Feb 21, 2006)

Defying the Market: Profiting in the Turbulent Post-Technology Market Boom by Stephen Leeb and Donna Leeb (Hardcover – Jun 3, 1999)

Empire of Debt : The Rise of an Epic Financial Crisis (Hardcover) by William Bonner, Addison Wiggin (November 11, 2005)

The Great Bust Ahead: The Greatest Depression in American and UK History is Just Several Short Years Away. This is your Concise Reference Guide to Understanding Why and How Best to Survive It (Paperback) by Daniel A. Arnold (November 25, 2002)

Image courtesy of http://mirrorimageorigin.collegepublisher.com/media/paper144/stills/x5jf138r.jpg

Piranha

I harp on this subject over and over but I do so for a reason. Most investors are still scared to buy stocks that are priced above $50 or $100 per share. They continue to reason with themselves that they could buy 1,000 shares of a $10 stock rather than 100 shares of a $100 stock. They like the idea that they own 1,000 shares and they focus on the possibility that the stock could double from $10 to $20 a lot easier than $100 to $200. I guess the joke is on them and I know that this is one of the reasons why many of these people continue to fail at investing in the stock market. It all boils down to false perceptions and lack of experience.

If you search this blog or the MSW archives, you will see that I have been covering Tenaris (TS) and Hansen Natural (HANS) for about a year. Every chance I get, I talk about these stocks because I have owned them both (multiple times). Most recenely, I wrote a blog post on March 3, 2006 that spoke about this same topic and compared the gains/losses in Tenaris and Sirius (a beloved lower priced stock that does nothing). In that last post, I showed you how Tenaris moved from $123 to $179 while Sirius moved from $7.12 to $5.08 in a three month period of time (ending 3/3/06). Since March 3, 2006, Tenaris has moved from $179 to $241 while Sirius has moved from $5.08 to $4.81 yet many of the Sirius speculators still believe that SIRI is the better investment over time. Really? They continue to sit there and WAIT for something to happen while other higher quality companies and stocks contine to push higher making their investors solid gains.

Another stock I wrote about on March 3, 2006 was Hansen Natural (HANS) when it was priced at $98.79 (a pre-split adjusted price of $197.58). I bought the stock near $66 (pre-split adjusted) and couldn’t care how large the prior advance was because the trend was still higher and I wanted to make a profit based on my analysis (not the height of the price). HANS is now trading at $140.05 (a 42% advance) in seven weeks (this comes after the several hundered percent advance over the past two years). Keep in mind that the pre-split adjusted price is now $280.10. The stock has gone from $66 to $280 since I first purchased it eleven months ago (no I haven’t owned it the entire way but I did establish postions at two ideal entry areas). Tenaris has gone from $50 to $241 over the past 12 months.

Another great example is Chicago Merchantile Exchange (CME); it has traveled from $200 to $500 over the past twelve months. You may say I am only picking out a few higher priced examples but that statement would be ignorant sicne I specialize in stocks traveling through the $60-$100 range and see dozens of stocks make the trek in a few months.

The morale of this post: Don’t ever make an investment decision based on the height of the price because you may miss a huge winner. Stocks can move from $100 to $200 just as fast as they move from $10 to $20; especially if the $100 stock is in a strong up-trend and the $10 stock is sub-par or trading in a downtrend. Take a look at the charts

Piranha

…I received an e-mail from an aspiring investor in the market and was very pleased to see the progress of this young student. He stated several experiences he has had with the market but then went on to tell me that they were all through a virtual account. While his experiences are great, I had to stop him short when he compared them to my own real life experiences when I lost a great deal of my money during the early stages of the bust in 2000. I know he may have become emotional when the virtual account lost money but this pales in comparison when you or I lose real money in the real market. Below is what I wrote back to this student of the market:

It is great to see you learning how to cope with the market and your emotions but I must let you know that paper trading and real trading are two different universes. Losing on paper is nothing like the real thing and your decisions on paper will never resemble what you actually do in real life with real money. I am not trying to discourage you but it is not the same, no matter what anyone says. Try it and you will know exactly what I mean.

Another comment: I would suggest that you paper trade a realistic amount instead of $100,000 because that doesn’t seem like the amount you would start with in real life. If you are only going to start with $5,000 or $10,000, only paper trade with that amount so you can get a more realistic feel for what you can accomplish. Make your virtual trading as close to the real thing as possible. Buying $50,000 in calls doesn’t seem realistic at all (you would never do that at this point in time in real life, if ever).

One last thing: even if you only have $2,000 or less, trade it for real. Get your feet wet and see what happens. Don’t try to make money, try to develop a real life system. Make mistakes and learn to control emotions because it will only make you stronger later in life when you do trade larger sums of money. I am not sure how old you are but starting with any real amount of money is better than fake money in my opinion. Some will argue that virtual trading is very helpful and I agree on a limited basis but nothing will ever teach you what you need to know except the real thing.

Keep reading and keep learning and good luck.
Piranha

…Times are tough in the market and we haven’t been in an up-trend since late last year. Many “talking-heads” on TV and radio are claiming they have get rich quick stock schemes, hot stock tips or systems that can be used in less than one hour per week. I laugh at these claims and feel pity for the novice that gets suckered into these money scams. Like any endeavor in life, success in the stock market takes time, lots of time to learn and develop a successful system. Over time, this system will be modified slightly to accommodate the changes in your life and the world around us. Without constant involvement and study, you will not be successful at managing your own portfolio over lengthy periods of time. If you do not have the time to manage your own money, please take the time to hire a qualified professional that has a lengthy track record with other clients in both bull and bear markets.

Many novice investors believe that fortunes will be yielded from the stock market with minimal amounts of work. I ask myself: How can anyone be so naïve? Nothing comes easy in life and the stock market is no different. I look to one of my mentors for advice, comfort and direction when things are not working as planned. His name is Jesse Livermore. He passed away in the 1940’s and is considered one of the greatest speculators (investors) that Wall Street has ever witnessed. The quote below by Livermore is arguably the best quote ever said pertaining to Wall Street:

“BEWARE of IGNORANCE – The market must be studied and learned, not in a casual way, but in a deep knowledgeable way. The stock market, with its allure of easy money and fast action, induces people into the foolish mis-handling of their money like no other entity.
THE REVERSE OF IGNORANCE IS KNOWLEDGE, AND KNOWLEDGE IS POWER!” – Jesse Livermore

Read this quote aloud several times and think about what it is saying. With our current market situation, now is the time to be reading and studying as much as you can while your cash is waiting on the sidelines patiently. The market is negative and we have not seen a group of quality leaders since 2005 has started. I highly recommend reading “How to Trade in Stocks” by Jesse Livermore. If you have already read this book, reread it; I have read this book in its entirety at least one dozen times and refer it numerous times every year. Another great book to read about the life of Jesse Livermore is “Reminiscences of a Stock Operator” by Edwin Lefevre (arguably the greatest book ever written about the stock market).

If you are not comfortable shorting stocks or playing our red flags, then cash is your best position in this current sideways market. As your cash earns minimal interest in a money market account, you should be studying your past trades, your past mistakes, your past successes and reading about the markets as much as possible. If you waste this precious time now, you will not have the luxury of additional time when the leaders do present themselves and your skills may lack when the time comes to make a profit. To start, read over our entire free Philosophy and Education section of the website and then study the common chart patterns on our Technical Analysis Guidelines page. Become familiar with everything on these two pages and try to locate similar patterns on current stocks making our screens. In sports, they always say that practice makes perfect and I believe this statement to be true with stocks. Note: No one will ever be perfect but you get the idea.

Piranha