It's my biggest 'secret' in investing... something, it seems, that I do alone... and it always works.
It's not much of a secret, actually... but the reason it works is because most people can't do it, even if they recognized it. What is it?
I simply buy something when nobody wants it. And I sell 'What's Hot Now.'
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Sounds simple, I know. But most people simply get caught up in what's hot now. They want what their friends own, what everyone else has already bought...
People want the acceptance of their ideas, or there's some comfort in groups, or, well I don't know. But I know that people don't want to miss out on doing what their neighbors have done to get rich. If all their friends are getting rich in real estate, they want to get in. And if nobody else they know is buying gold coins, for example, then it must not be the thing to do.
So the best lesson I can share with you is 'What's Hot Now.'
So you'll know what to avoid.
Back in 2000, tech stocks were 'What's Hot Now.' I see four things that everyone is clamoring for right now:
1. China and China-related plays
2. Commodities, as part of the China story
3. Real estate
4. Bets against the dollar
While these are the popular bets, you might be surprised to learn that all these bets have been losing money in the stock market since March.
And chances are very good that much larger losses are to come.
'Housing' is a chart of the stocks in the Housing Sector Index (Yahoo symbol: ^HGX). Housing stocks can fall much quicker than home prices. If housing stocks are a leading indicator of home prices, then the top of the housing 'bubble' might be near. At the very least, I'm not buying housing stocks now.
DJ-AIG Commodity is a broad index of commodity prices. Commodities have been all over the financial news recently - of course, that's after a three-year run-up. Commodities need a breather...and the what's-hot-now investor needs to get shaken out.
'Shanghai' is the Shanghai Stock Exchange Composite Index (Yahoo symbol: ^SSEC). China is hot across the world. But this index is down some 40% from its highs about a year ago - and that's telling us that the bloom is off the rose.
Are we all aware of this? I don't think so.
Lastly, the dollar has been rising this year versus the euro. I recently received an ad in the mail with the headline 'Judgment Day for the Dollar! The value of the dollar - your dollar - is crashing worldwide...'
This ad is sitting on my desk, on top of a stack of about a dozen other ads, all with the same headline. The dollar has been crashing for three years. It's down 40% from its peak.
Like China, 'the dollar' is a hot topic on around the globe. The problem for investors is, by the time a story is mainstream, it's too late. And the New York Times, BusinessWeek, Fortune, and the Economist have all had 'the death of the dollar' on their covers in the last six months.
Over the long run, China and commodities may do well, as everyone expects. And the dollar may fall. But in the short run, there's just too much hype. This leads me to believe that, for the rest of this year, at least, chances are 'What's Hot Now' - China, Commodities, the Euro, and real estate - won't make you any money.
That's the way it always works. When the story is too popular, there's no money left to be made.
The flip side of this, of course, is where the money is made... What's not popular? Plenty of stuff... safe corporate bonds, biotech stocks, gold coins... the list goes on.
If you remember nothing else remember to sell 'What's Hot Now' and buy what's not.
By Dr. Steve Sjuggerud
