Seven Questions to Ask Before You Invest in That IPO

 
At some point, your friendly local stockbroker may present you with the opportunity to invest in an initial public offering (IPO).
 
In an IPO, a company raises capital by selling shares to investors. When you buy a stock in the secondary market, you're buying it from another investor. But with an IPO, the cash you pay goes to the company.
 
You've probably heard about the IPOs that see a surge in the share price on the first day of trading. But that happens rarely – and it should not be a reason to invest in an IPO.
 
If you're looking at IPOs, it pays to ask these seven questions first…
 
1.  Who gets the money?  
The whole point of an IPO is to raise money. But who gets the cash? Sometimes it's the founding shareholders, who are usually management. If these insiders are selling, what does it say about the company's prospects? Nothing good.
 
Of course, that's not entirely fair. The founding shareholders of a company may be looking to take some cash off the table after spending their time and money building the business. They may want to diversify their assets – or maybe buy a yacht.
 
However, it's much more encouraging if the proceeds are used for the company's further development and expansion. And in any case, the founding shareholders should hold on to a significant stake so that they still have skin in the game.
 
2. Why now?    
A company may sell shares because it needs funding to grow… Or company insiders may believe they're selling at a point of maximum optimism, which means they'll get a better price (from a valuation perspective). Like everyone else, the sellers want to "sell high." Meanwhile, investors buying into an IPO are trying to "buy low," betting that the company's growth prospects are still strong.
 
Who knows best? The danger of being wrong is that you buy an offering when the company is firing on all cylinders and things can't get any better… in which case, they can only get worse.
 
3. Is the company profitable?    
If it isn't, let's face it: You're not investing – you're speculating. That doesn't mean you shouldn't buy shares, but it does suggest that the offering is riskier. And you should account for that higher level of risk accordingly.
 
4. Are the shares expensive or cheap?    
The shareholders who are selling want to sell at a high valuation level (based on measures like the price-to-earnings ratio, for example). Investors buying into the IPO, meanwhile, want a low valuation so that the share price has room to rise.
 
The big question – as with any valuation exercise – is what the stock price is being compared with. The people selling the IPO will point to companies that trade at high valuations – so that the shares they are selling will appear cheap by comparison. The shares of companies that are direct competitors in the same country and sector, with a similar growth rate, are generally the best ones to look at.
 
5. Can I get shares if I want them?    
Most brokers tend to save their IPO allocations for their "favored clients" – customers who trade with large sums of money. So underwriters and "big investors" tend to have the first bite… And individual investors are often left with the table scraps, or with the shares of a dud offering. To paraphrase Groucho Marx, would you want to buy shares of a company that has shares available to sell to you?
 
6. What about fees?    
Not long ago, investment banks made a killing on IPOs. They could earn around 7% of total proceeds, though that could vary according to the size of the deal. In effect, that meant investors were only getting $0.93 of value for every dollar they invested.
 
Thankfully for investors, that's all in the past. Today, fees are a lot more reasonable. But keep in mind that your broker will stand to make a lot more by selling you shares of an IPO than by selling you a stock that's already trading.
 
7. What rights will you have as a shareholder?    
Traditionally, when companies issue equity to shareholders, those shares come with voting rights. "One share, one vote" used to be the conventional wisdom. But that is now changing, especially in the technology space.
 
The most outrageous recent example occurred earlier this year with the IPO of social-media company Snap (SNAP). In that case, new investors bought shares with absolutely no voting rights whatsoever. In fact, Snap's 27-year-old founders control nearly 90% of the company.
 
As an investor, you need to ask yourself if you are comfortable with companies taking investor money, but not giving investors any say in how the company is operated.
 
If you're looking at investing in an IPO, get answers to these questions first. And remember, if it sounds too good to be true… it probably is.
 
Good investing,
 
Kim Iskyan
 
Editor's note: Kim and his team are researching the next explosive phase of the Chinese middle-class boom… And they've discovered four of the best investments to get you in on it – before other investors take notice. This could be the biggest growth story of our lifetime. Click here to learn more.

Source: DailyWealth

Volatility in This Sector Just Hit a 15-Year High

 
Volatility in the technology sector is hitting a rare high.
 
Compared with the overall market, the tech sector is as volatile as it has been since 2002.
 
Extreme volatility is scary…
 
High volatility means big price swings… And big price swings can make you feel like you're taking big risks.
 
But higher volatility alone does NOT mean higher risk in the markets. It simply tells you how much a market is moving up and down.
 
So while tech-sector volatility is soaring… that's not a reason to panic and sell. The tech sector actually soared the last couple of times volatility came close to these levels.
 
Let me explain…
 
Volatility in the technology sector is soaring.
 
The good news is that it has been upside volatility. Tech stocks are up 18% this year.
 
But even more important, history says today's level of volatility could actually be a good sign for further gains…
 
Volatility in the technology sector skyrocketed during the dot-com bubble in the late 1990s and early 2000s.
 
The sector reached a volatility ratio of 3 in February 2001 – meaning the volatility in tech stocks was three times higher than the volatility in the overall market.
 
You know what happened next… Tech stocks fell off a cliff for the next few years. This might seem like a terrible sign. But it's only part of the picture.
 
First, take a look at the chart below. It shows the volatility extreme happening right now…
 
Tech-stock volatility hasn't been this high relative to the overall market since 2002. It's more than twice that of the S&P 500 right now.
 
But the chart also shows that volatility has a long way to go before reaching its dot-com bubble peak. And more importantly, not every volatility peak led to a fall in stock prices.
 
Other than the recent breakout, this volatility ratio has risen above 2 only twice in the past 15 years… in 2004 and late 2016. Those both turned out to be good times to buy tech stocks…
 
The sector soared 53% from July 2004 to October 2007. And tech stocks are up 17% since the volatility spike in late 2016.
 
When investors think of high volatility, they tend to think about higher risk and falling prices. But high volatility just means stocks are moving around rapidly.
 
In the case of tech stocks, that means they can move dramatically lower… or dramatically higher.
 
Right now, we're in the middle of the "Melt Up" in U.S. stocks. And that will likely mean high volatility – and much higher prices.
 
Tech-sector volatility is soaring. And history says that means tech stocks should continue to be a big winner.
 
Good investing,
 
Brett Eversole
 

Source: DailyWealth

Are You Scared? Stocks Hit Their Highest Valuations in 17 Years

 
"Investors are pulling out of stocks," my friend Jason Goepfert wrote this week on his SentimenTrader website.
 
Specifically, he said, "In early July, investors pulled more than $11 billion from domestic equity funds." As he notes, that's "a huge outflow."
 
And it tells me that investors are scared.
 
Are you scared?
 
I get it. Stocks are hitting record highs. And they're now extremely expensive.
 
Let me show you where we stand… And then I'll tell you what I think we should do with our stock investments right now…
 
Stocks are having a great year. And the S&P 500 has returned more than 300% since bottoming in March 2009.
 
These big gains have led to worryingly high valuations… Based on one measure, the S&P 500 just hit its most expensive level since 2000.
 
That is, the S&P 500's price-to-sales (P/S) ratio just hit its highest level in 17 years.
 
This ratio is a simple valuation tool… It might even be the simplest one. It's useful, too… Since it looks at the "top line" number – before all the math that gets to the "bottom line" – it lowers the risk of accounting shenanigans. We call it "one of the best ways to measure real value in the stock market."
 
At the market bottom in 2009, the S&P 500's P/S ratio fell to less than 1. Stocks were cheap.
 
But that has reversed since… Stocks have soared, and the P/S ratio recently rose to about 2. That's its highest level since 2000. Take a look…
 
That's a scary chart. Valuations have moved dramatically higher in recent years. And seeing prices near dot-com-bubble levels is frightening.
 
Should you worry?
 
Consider this…
 
The P/S ratio just broke above 2. During the 1990s bull market, the P/S rose above that level in December 1998.
 
Was selling then a good idea? Heck no! You would have missed out on another 26% gain in the S&P 500. And the Nasdaq Composite Index went on to soar another 131% from there, too.
 
So while it's rare for the S&P 500's P/S ratio to break above 2… by itself, that isn't a reason to sell.
 
More importantly, don't let one valuation metric scare you out of the market. The P/S ratio isn't the only way to size up stock prices.
 
If we look at two other popular measures – the price-to-earnings (P/E) and price-to-book (P/B) ratios – we see something different…
 
These two measures are still well below their 2000 bubble peaks. The P/E ratio would need to increase 34% to hit its 2000 high… And the P/B ratio would need to rise 59%.
 
These metrics don't say that stocks are cheap. But they aren't flashing bubble warnings, either.
 
Stocks are getting more expensive, no doubt. The P/S ratio just hit a 17-year high. And other measures are high as well.
 
But the important point today is that valuations – by themselves – don't kill bull markets.
 
Please keep in mind, the final innings of a great bull market often deliver massive gains. I call this phase the "Melt Up."
 
You don't want to get scared like everyone else today. You want to be on board for the Melt Up phase.
 
When everyone else STOPS worrying… when everyone else is PILING INTO the markets, not PULLING OUT of the markets… THAT'S when we want to worry.
 
We're not there yet.
 
The Melt Up is here… Investors are scared, but the trend is up. It's a perfect setup.
 
Based on that, the smart move is to stay in stocks until that changes.
 
Good investing,
 
Steve
 

Source: DailyWealth

The Closest Thing to a 'No Lose' Proposition in Today's Market

The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
 
 Our colleague Dr. David "Doc" Eifrig has spotted a trend that he believes every American needs to be aware of…
 
The sharp decline in U.S. military spending.
 
If you're like most folks, this comes as a surprise. After all, for years we've heard about the billions of dollars spent on various defense projects, and how the U.S. spends more on its military than any other country.
 
Doc says the reality isn't so simple. As he explained in a new special report for his Retirement Millionaire subscribers…
 
If you think, like most Americans do, that we've got an insurmountable military advantage, you're in for a shocking revelation.
 
National defense has declined sharply since 2010.
 

As Doc explained, this decline is a result of both Obama-era decisions to slow military spending, along with "sequestration" cuts forced by the Republican-led Congress following arguments about the debt ceiling. But he says even those figures don't tell the whole story…
 
As a percentage of the economy, our spending is at its lowest point in more than 70 years.
 
And the number of military personnel hasn't been this low since the troops came back from WWII.
 
 Meanwhile, Doc noted that the potential threats the military faces are changing again…
 
For decades, an army was an army: Troops, guns, ships, and planes. Whomever you fought, you'd send the same men, vehicles, and artillery to destroy the enemy. The biggest change between our Vietnam forces and the First Gulf War was the change from jungle to desert camouflage.
 
That's changed. It started after the 9/11 attacks. In Iraq and Afghanistan, U.S. troops didn't fight large armies. Rather, they fought small insurgent forces embedded deep in cities among civilians.
 
We still had military superiority, but all our bombers and aircraft carriers offered no advantage. This was a different war. We needed small, highly trained forces with lots of intel. And we needed special outreach programs to win the "hearts and minds" of the local populations, as they say.
 

In other words, fighting China or fighting Al-Qaeda required different training, different hierarchy, different weapons, and different technology. The military largely shifted focus, building itself around the new threats of terrorism.

Today, those threats remain. But the "superpowers" have now returned. Countries like Russia, China, and North Korea increasingly represent a threat. And Doc noted that our "insurgent focused" military simply isn't prepared to deal with them…
 
If you compare our 1.3 million active duty troops with China's 2.8 million or even Russia's 1.5 million, our dominance doesn't look so assured. In fact, there's a term for our current status: The 1.5 Standard.
 
After the Cold War, the U.S. military adopted a standard that it should be prepared to handle two "major regional contingency" military situations. In other words, the military should be able to handle at least two large engagements at any time to prevent an adversary from taking advantage of one war to start another.
 
That level of protection is gone. By 2012, the standard had changed. Now the goal is to handle one conflict, while still being able to "impose unacceptable costs" on another… or the 1.5 Standard.
 

I don't like the sound of that. And these are really only plans for small, regional conflicts. Independent analysis has determined that the U.S. could not deter a Russian assault on a Baltic nation. And if China wanted to capture Taiwan today, it could completely dominate the South China Sea.

 To Doc, all this adds up to one big certainty…
 
U.S. military spending will rise significantly in the coming years.
 
You see, while most folks aren't aware of these problems, those at the top levels of the military are… And they're determined to fix them. More from Doc…
 
The military brass is pushing back. The Department of Defense's budget request for 2018 included a $52 billion increase in the budget – an increase of nearly 10%. It's fully backed by Trump.
 
Senator John McCain has proposed a spending increase of $50 billion per year, taking on 8,000 new troops, 59 new navy ships, and 93 more F-35 fighter jets.
 

We think that's the low estimate. Even a shift to average levels of 4.5% to 5% of GDP spending would be an increase of $90 billion to $200 billion per year.

 Now, don't take this as an endorsement of war…
 
We certainly hope the U.S. avoids a major new conflict. And longtime readers know we aren't fans of unnecessary government spending.
 
But as Doc noted, even if the government chooses to take a smaller role on the "world stage," better technology is needed to keep pace with China and other growing powers.
 
Either way, more spending is virtually guaranteed. And a handful of companies will be the biggest beneficiaries…
 
With the defense industry so consolidated, those billions flow very quickly into the pockets of a small group of companies and their shareholders. Even big, established businesses can get pushed very quickly by waves of cash that big – even though it's a minor increase from the government's perspective.
 Doc's special report details his five favorite stocks to profit from this trend…
 
As you'd expect from Doc, they're all high-quality companies that treat their shareholders well. These stocks should continue to do well even if spending doesn't rise as expected. But if Doc is right, they could absolutely soar over the next few years. And should a new conflict break out, the sky is truly the limit.
 
In short, buying these stocks is as close to a "no lose" proposition as you'll likely find in the markets today.
 
Of course, if you're familiar with Doc's Retirement Millionaire advisory, you know it's about much more than building your wealth. It's also about protecting the health and well-being of those you love.
 
That's why folks who agree to try Retirement Millionaire today won't just get his special report on the best ways to profit from this trend…
 
You'll also get Doc's no-nonsense book on preparedness, called The Doctor's Protocol Field Manual. Unlike any other book we've seen on the subject, Doc's is based on facts, science, and real medicine, rather than hype.
 
Doc has also partnered with renowned geopolitical expert Richard Maybury to show you exactly how to prepare for the growing risks of war and global conflict. You'll get Richard's new research report – "How to Survive and Flourish During America's Next Episode of Great Wealth Destruction­" – and one full year of his must-read U.S. & World Early Warning Report.
 
Best of all, for a limited time, you can get it all for less than the usual cost of a Retirement Millionaire subscription. And as always, it comes with Doc's 30-day, 100% money-back guarantee.
 
If you're not already reading Retirement Millionaire, there has never been a better time to give it a try. Click here to sign up now.
 
Regards,
 
Justin Brill
 
Editor's note: Doc recently put together a report that details his top five defense investments today. As a DailyWealth reader, you can get instant access to these recommendations… a copy of Doc's book, The Doctor's Protocol Field Manual… all his research for one year… and more for just $99 (a savings of nearly $300). Get all the details right here.
 

Source: DailyWealth

This Hidden Danger Could Be Draining Your Portfolio

 
In 1960, John B. Armstrong made a $5.4 trillion misjudgment.
 
Armstrong was the father of the modern mutual fund. Today, most people know that mutual funds pool money to manage a portfolio. But at the time, few people had even heard of them. The entire industry only had about $2 billion in assets under management ("AUM") – roughly 1% of total American savings.
 
Back then, all mutual funds held a collection of securities handpicked by professional money managers. It's what we call "active management" today. And Armstrong, who would go on to be president and CEO of fund company Wellington Management, promoted the strategy wholeheartedly.
 
But he made one mistake…
 
He completely dismissed the idea of the "unmanaged" fund – a passive investment designed to track the performance of an entire index.
 
Armstrong wrote a paper arguing that these funds would always dramatically underperform their benchmark indices. He predicted they would never gain popularity.
 
As we now know, he couldn't have been more wrong… Passive funds can not only track an index closely, but they have also become immensely popular. Today, U.S. passive funds have a combined $5.4 trillion in assets… That's about one-third of total fund assets in the U.S.
 
Now here's something that might surprise you… Armstrong wrote under a pseudonym. His real name was John C. Bogle… And he's best known as the father of index investing. Bogle made a 180-degree turn after the 1970s market downturn crushed Wellington shareholders. He started the first index fund in 1975.
 
Now, more than 40 years later, we're in the midst of a low-cost fund revolution. People are pouring into low-cost passive funds… and out of high-cost active funds.
 
Like Bogle, investors are starting to figure out the startling truth about active management…
 
You might expect the average mutual fund to perform about as well as the market. But that's not the case.
 
Over the past 15 years, more than 92% of U.S. large-cap mutual funds have trailed the S&P 500.
 
The vast majority of mutual funds underperform because the fees they charge more than negate any outperformance they've achieved by picking high-performing stocks.
 
Over time, these fees add up…
 
Let's say you have a $100,000 portfolio, and you invest in a low-cost fund that tracks an index with a 5% annual return. This low-cost fund charges a management fee per year of 0.17%, which is the average asset-weighted fee for all passive funds. Your $100,000 would grow into more than $411,000 in 30 years.
 
Now let's say you had invested in a high-cost fund, instead. This actively managed fund also earns 5% a year. And it charges a 1.14% annual fee, which is the simple average fee across all funds. Your $100,000 would only grow into about $311,000.
 
In our hypothetical example, the company managing the high-cost fund has essentially siphoned off around $100,000 of your money over 30 years… which is equal to your entire initial investment.
 
By design, passive funds cost less. Vanguard's asset-weighted average expense ratio – its management fee – is just 0.12% per year. That compares with a much higher 0.75% asset-weighted average fee for active funds. And many funds have fees greater than 1%.
 
Let's be clear… Active management is not necessarily doomed to underperform the market. The issue is that the fees associated with most active funds more than offset any market outperformance.
 
This mantra has significantly altered the way both Main Street and Wall Street think about investing. More and more investors – both the institutional and the mom-and-pop variety – are realizing that fees are the enemy of high returns. It's also dawning on them that low-cost funds have a much better chance of delivering better returns.
 
Unsurprisingly, fund companies are creating more passive funds to meet this investor demand. Back in 2000, only about 10% of funds were passive. But passive funds now account for more than 30% of all funds.
 
And it's not only that there are more index funds. The already lower costs for passive funds are declining further.
 
The SPDR S&P 500 ETF Trust (SPY) – the largest exchange-traded fund ("ETF") with around $230 billion in AUM – has an expense ratio of just 0.094%. That means for every $1,000 invested, you'll only pay $0.94 each year in management fees.
 
And SPY isn't even among the 50 lowest-cost ETFs anymore. The following table shows the 10 lowest-cost ETFs in the U.S. as of last month:
 
All of the funds in this list have razor-thin fees of 0.05% or below. This group has a combined $295 billion in AUM… And of course, they're all passive funds.
 
More than $1 trillion is now held in ETFs with annual fees of less than 0.1%… And that level of investment will only grow because the cheapest 20% of funds are receiving the lion's share of inflows.
 
The investment-management industry is changing. Not only will declining management fees save investors money, but it will also destroy many mutual-fund companies that have failed to adapt.
 
More and more investors are learning that fees are the enemy… If you haven't already, put your money where it will do you the most good.
 
Regards,
 
Porter Stansberry
 

Source: DailyWealth

The 'Rolls Royce' of Metals Just Fell Below $900… And Nobody Cares

 
An interest-rate hike "spells doom for gold prices," proclaimed one headline about precious metals in the Economic Times this week.
 
I had to laugh at that headline… because what it meant to me is the opposite of what it said.
 
You see, when I see doom-filled headlines, I know we are typically closer to a market bottom than a market top.
 
So when I first saw that headline, I didn't expect doom in precious metals prices. Instead, I went looking for opportunity in precious metals.
 
It didn't take long to find it…
 
The most hated precious metal today is platinum. (To me, "most hated" means it's the one with the most upside potential in the near term.)
 
For decades, platinum has typically been more expensive per ounce than gold. Therefore, it has a certain "ooh la la" to it in the jewelry store. It's sort of the "Rolls Royce" of precious metals.
 
But gold is trading above $1,200. Meanwhile, platinum has fallen to less than $900 an ounce. NOBODY believes in platinum today. This is EXACTLY what I like to see.
 
Take a look at the following 20-year chart of platinum versus gold…
 
As you can see, this is an extreme situation. Platinum prices haven't spent a lot of time cheaper than gold prices over the last two decades.
 
In the last 10 years, platinum has fallen into the $800s just twice. And it didn't stay down there long…
 
In late 2008, it fell into the $800s. Platinum then doubled in less than 18 months.
 
In January 2016, it bottomed around $820 an ounce. By August – just seven months later – it rose to around $1,175 an ounce, for a 43% move.
 
Today, the situation is more attractive. Platinum is cheaper (relative to gold) than it was in those two previous instances. So the starting point here is even better.
 
But one big word of caution: I am not a buyer of platinum… yet.
 
You see, platinum is still in a significant downtrend. So I want to see an uptrend begin before I consider buying.
 
I told a similar story about platinum back in May. I said it was cheap, but it was still in a downtrend, so I would wait for the uptrend before buying. That was exactly the right thing to do… Platinum is down another 6% since then. (Prices rose slightly to around $915 yesterday… but the metal is still historically cheap.)
 
When I tell you to wait for the uptrend, I mean it!
 
Nobody cares about precious metals today. Meanwhile, the media headlines are about "doom" for precious metals. I love it.
 
If you are a contrarian investor, keep an eye on platinum prices… And consider buying once the uptrend returns. Since it's the most hated, your upside potential could be the greatest among all the precious metals.
 
Good investing,
 
Steve
 
P.S. If you're looking for the best ways to take advantage of today's natural resource market, please join me later this month at the Sprott Natural Resource Symposium in Vancouver. Our host Rick Rule has brought in industry experts and world-renowned analysts to give you the kind of hands-on investing ideas you won't find anywhere else. And I'll also be returning as a speaker this year. Don't miss this opportunity… You can learn more about the event and register right here.

Source: DailyWealth

The Real Key to Building Lasting Wealth in the Market

 
"Sell everything," came the phone call on a January 1981 night… A crash was coming.
 
The next morning, stocks dropped 2.5%. The market headed in that direction for most of the year, losing 9.7%.
 
It was masterful crystal-ball gazing by market commentator Joe Granville. He would later say: "The market told me, 'Sell.' And we do what the market tells us to; we never hedge. Only losers hedge."
 
Granville became a rock star of financial calls. He traversed the country… performing in wild financial conferences with his own theme song, a Moses costume, wire-stunt entrances, and exploding hand grenades. Estimates put his annual income at around $6 million.
 
It feels good to make the right call.
 
Maybe you predicted the Super Bowl champ at the start of the season or backed the winning presidential candidate early on. When you can look back and say you knew what was going to happen, it gives you bragging rights. And in the financial business, it can make you money.
 
But recognize that the human brain wasn't built for modesty…
 
We tend to trumpet our insights, but brush off all the wrong forecasts we make. You don't deserve much credit for your Super Bowl prediction. One dropped interception by your young defensive back could have changed the entire outcome. And what about the other years when you called it wrong?
 
Even worse, you can fool yourself into thinking you called something that you didn't… Today, the number of folks who claim to have known that Donald Trump would win the election far exceeds the number who predicted it publicly beforehand.
 
But you can't fake it when there's money on the line. The market makes your past record honest and immutable. For example, our founder Porter Stansberry publishes a public annual "Report Card" for every Stansberry Research publication.
 
That type of transparency is rare among folks who are willing to make big calls…
 
Granville, for one, was all style and no substance. He claimed to have 18 key indicators that told him where the market would go next. But later studies showed they had little to no predictive power.
 
In fact, his stock predictions typically performed worse than the market. And after his prescient 1981 call, Granville continued to make bearish calls… even as 1982 started a historic bull market.
 
He resurfaced to predict another bear market in 2002 and again in 2012 – both calls were wrong. He tried to predict earthquakes, too… down to the specific dates that California would be shaken off the continent and into the ocean. None of those came to pass.
 
Brilliant prognosticators who make bold, massive calls are turned into Wall Street heroes. The trouble is that they rarely have repeat performances…
 
John Paulson made $5 billion in a year by betting correctly against subprime mortgages… But he has had disastrous years since. He made bad bets on Bank of America (BAC), invested in a Chinese company that turned out to be a fraud, and loaded up on gold at exactly the wrong time.
 
George Soros won fame for making $1 billion in a day shorting the British pound. (I even know how he did it – I worked for Goldman Sachs in London). However, Soros expected markets to crash when Trump got elected and put on short bets when the results came it. It's estimated that he lost $1 billion before he could get out of his positions.
 
Investors couldn't get enough of Jim Rogers, a bull on China and commodities leading up to the financial crisis. Rogers continued to love commodities as they tanked for the past five years. Investors don't pay as much attention to him anymore.
 
And last January, an analyst at the Royal Bank of Scotland issued a call to "sell everything."
 
Investors should not be making huge portfolio moves based on a single prediction. To build real, lasting wealth… with a portfolio that pays out steady income month after month in retirement… you must focus on what matters.
 
What you'll see is that many overlapping developments push the markets today. You'd have to be a fool to think you can guarantee which way the market is headed. So we won't. Some moves simply can't be predicted with much certainty.
 
That's why it's important to build a diversified portfolio… We don't know when or even if a market earthquake will come, so you'll want a portfolio that keeps you safe no matter what.
 
Here's to our health, wealth, and a great retirement,
 
Dr. David Eifrig
 
Editor's note: Dave recently released a new, controversial video showing just how close America is to a crisis. Learn how to prepare  and protect yourself from a "market earthquake" – right here.

Source: DailyWealth

The 'Melt Up' Isn't Close to Over Yet – Here's Why

 
In late May, I wrote a DailyWealth showing you exactly what a dying bull market looks like.
 
The idea was simple: In the last great "Melt Up" in stocks – from 1998 to 1999 – something interesting happened…
 
While the main stock indexes were rising in 1999, most stocks were actually falling in price. And this went on for months.
 
That was an ominous sign. In 1999, we were in a dying bull market.
 
Don't get me wrong. You can still make a lot of money in the final stages of a bull market. Often, the biggest gains come in these final stages. That's what happened in the last few months of 1999.
 
The thing is, you have to keep an eye on the health of the market. Think of us as the doctor and the stock market as our patient.
 
Today, I'll update you on our patient's health…
 
The news is good.
 
Even though we're a long way from May, the patient is as healthy as he was back then.
 
Specifically, the number of rising stocks is still greater than the number of falling stocks. (This is called the advance/decline line. You simply add the number of winners and subtract the number of losers.)
 
Take a look…
 
This is what a "healthy" boom looks like. It's no guarantee that stocks will keep going higher, but it does tell us that the rally is "broad" – across most stocks.
 
As a reminder of an "unhealthy" boom, let me share with you what happened during the final stages of the last great bull market in 1999.
 
As you can see in the chart below, more stocks were falling than rising. Take a look…
 
The massive divergence in this chart was a clear warning sign for stocks.
 
The majority of stocks had stopped moving higher. And the final Melt Up gains all happened in what was overall a weak market.
 
This isn't happening yet. Stocks are still broadly moving higher. So we're not in a dying bull market… yet.
 
Importantly, stocks can still soar even after the advance/decline line breaks down.
 
The last Melt Up occurred entirely after this measure began to fall. Said another way, we'll likely see the biggest gains when the overall bull market is at its weakest.
 
There's no guarantee of that, of course. But our best guide to what will happen is what happened last time.
 
This simple measure tells us the bull market is still strong today… And the biggest gains are still ahead of us. So my advice is simple: Stay long.
 
Good investing,
 
Steve
 

Source: DailyWealth

This Currency Could Soar 25% Over the Next Year

 
No one's talking about it…
 
It hasn't been in the news…
 
But the U.S. dollar has gone straight down this year. It has fallen almost 7% so far in 2017. And a falling dollar, in general, means other currencies are rising.
 
One currency in particular recently hit an extreme in negative sentiment, and is already on the move higher.
 
History says that's a setup for big gains. The currency soared 25% in less than a year the last time we saw a setup this good. And we could be at the beginning of a similar move right now.
 
Let me explain…
 
It's not a hard rule… But the world's major currencies tend to move the opposite on the U.S. dollar.
 
From 2014 through 2016, the U.S. dollar soared. And most global currencies fell as a result. Today's opportunity was no exception…
 
At its peak in 2011, the Canadian dollar traded at a 6% premium to the U.S. dollar. But things have changed.
 
The Canadian dollar is down about 27% since then.
 
One U.S. dollar is now worth about 30% more than one Canadian dollar. The reversal has been dramatic, to say the least. And traders have piled in as a result.
 
You see this a lot in currency and commodity markets. Speculative traders begin chasing a trade after it has run its course.
 
They get bearish at exactly the wrong time… right when things are about to turn around.
 
That's exactly where we are in the Canadian dollar right now. Speculative futures trades just hit their most negative level in history, based on the Commitment of Traders ("COT") report. Take a look…
 
Regular DailyWealth readers know that the COT report is a great contrarian indicator. It tells us what real-time futures traders are doing with their money. These traders tend to get it wrong when they all make bets in the same direction.
 
When the chart is low, it means futures speculators are incredibly bearish. And as you can see, after years of poor performance, speculative futures traders have gone from bullish to extremely bearish on the Canadian dollar.
 
That's a positive sign going forward. The last time negativity was near today's levels was early 2007. The Canadian dollar went on to soar 25%-plus less than a year after that.
 
The simplest way to bet on a higher Canadian dollar is through the CurrencyShares Canadian Dollar Fund (FXC). This fund also jumped roughly 25% last time around.
 
We can't know exactly how far the Canadian dollar – and FXC – will soar this time. But the U.S. dollar is falling… and speculators are overly bearish.
 
Last time, that led to a 25% rise. So the smart bet is on a higher Canadian dollar, starting now.
 
Good investing,
 
Brett Eversole
 
Editor's note: Last week, my colleague Steve Sjuggerud and I recommended another trade with incredible upside of several hundred percent over the next 12-18 months. And right now is the perfect time to invest. You can gain instant access to this recommendation with a risk-free trial subscription to True Wealth Systems. Learn more here.

Source: DailyWealth

Two Simple Ways to Trounce the Market

Editor's note: The Weekend Edition is normally pulled from the daily Stansberry Digest. But today, we're interrupting our regular schedule to share a piece of timeless investing advice from our friend Chris Mayer. In this essay, he shares two factors that will help your portfolio to outshine the overall market…
 
Beating the market over the long term is hard to do.
 
If you want to learn how it's done, Berkshire Hathaway bears repeated study…
 
Earlier this year, I attended the annual Berkshire meeting in Omaha, Nebraska.
 
Berkshire was the top performer in 100 Baggers, my study of stocks that returned 100 to 1 from 1962 to 2015.
 
The stock had risen more than 18,000-fold, which means $10,000 planted there in 1965 turned into an absurdly high $180 million 50 years later versus just $1.1 million in the S&P 500.
 
Berkshire – and the other 100-baggers in the study – affirmed that not only can you beat the market, but you can also leave it miles behind…
 
You need to consider two important factors in order to get that kind of outperformance. We'll go over them in today's essay…
 
1. Don't own too many stocks.
First, you have to be concentrated. You have to focus on your best ideas. You can't own a lot of stocks that just dilute your returns.
 
And in fact, this is what many great investors do. I highly recommend a book that came out last year called Concentrated Investing by Allen Benello, Michael van Biema, and Tobias Carlisle. The basic idea behind the book is that owning a portfolio of fewer stocks (10-15 names) leads to better results than a widely diversified one.
 
Warren Buffett, as is well known, did not hesitate to bet big. His largest position would frequently be one-third – or more – of his portfolio. Often, his portfolio would be no more than five positions.
 
For example, he bought American Express in 1964 in the wake of the Salad Oil Scandal, when the stock was crushed. He made it 40% of his portfolio.
 
Charlie Munger, too, is famous for his views on concentration. He's had the Munger family wealth in as few as three stocks. From Concentrated Investing
 
My own inquiries on that subject were just to assume that I could find a few things, say three, each which had a substantial statistical expectancy of outperforming averages without creating catastrophe. If I could find three of those, what were the chances my pending record wouldn't be pretty damn good…
 
How could one man know enough [to] own a flowing portfolio of 150 securities and always outperform the averages? That would be a considerable stump.

The book also includes profiles of investors who ran such concentrated portfolios. These include Buffett and Munger, along with lesser-knowns such as John Maynard Keynes, Lou Simpson, Claude Shannon, and more.
 
Lou Simpson ran Geico's investment portfolio from 1979 until his retirement in 2010. His record is extraordinary: 20% annually compared to 13.5% for the market.
 
Simpson's focus increased over time. In 1982, he had 33 stocks in a $280 million portfolio. He kept cutting back the number of stocks he owned even as the size of his portfolio grew. By 1995, he had just 10 stocks in a $1.1 billion portfolio.
 
Claude Shannon is another. He was a brilliant mathematician who made breakthroughs in a number of fields. He might also be the greatest investor you've never heard of.
 
From the late 1950s to 1986, Shannon earned 28% annually. That's good enough to turn every $1,000 into $1.6 million.
 
He also was extremely concentrated. At the end of Shannon's run, one of his positions (Teledyne) made up 80% of his portfolio, up 194-fold. That's concentrated to an extreme that few could stomach.
 
The point is… many great investors focus on their best ideas. They don't spread themselves thin. And the book also includes more formal research that supports the idea that focus is a way to beat the market.
 
2. Leave your stocks alone.
The second part of this is to hold on to your stocks. The power of compounding is amazing, but the key ingredient is time. Even small amounts pile up quickly.
 
In Omaha, we heard money manager Raffaele Rocco retell an old parable…
 
There once was a king who wanted to repay a local sage for saving his daughter. The king offered anything the sage wanted. The humble wise man refused.
 
But the king persisted. So the sage agreed to what seemed a modest request. He asked to be paid a grain of rice a day, doubled every day. Thus on the first day, he'd get one grain of rice. On the second day, two. On the third day, four. And so on.
 
The king agreed… and in a month, the king's granaries were empty. He owed the sage more than 1 billion grains of rice on the 30th day.
 
I have heard other versions of this story, but I like it because it shows you two things. The first is obvious: It shows how compounding can turn a little into a whole lot.
 
But the subtler second lesson comes from working backward. If the king pays 1 billion grains of rice on the 30th day, how much does he pay on the 29th day?
 
The answer is half that, or 500 million. And on the 28th day, he pays half again, or 250 million.
 
So you see that returns are back-end loaded. This is 100-bagger math. The really big returns start to pile up in the later years.
 
These two factors alone – a concentrated portfolio and low turnover – are important ingredients to beating an index and amassing serious wealth.
 
Buffett himself used a concentrated portfolio and low turnover to build Berkshire. And these two factors are also key parts of our project called Chris Mayer's Focus.
 
Our goal is to not merely beat the index, but to trounce the thing and make it irrelevant. We aim to compound our investors' capital at a high rate for years and years.
 
So far, so good… Three of the six open positions in my current model portfolio are already up by double digits, including one that is up nearly 90% in 10 months.
 
Regards,
 
Chris Mayer
 
Editor's note: In Chris Mayer's Focus, Chris focuses on opportunities that can turn $1,000 into $100,000. And right now, DailyWealth readers can claim two full years of his research at a 70% discount from the regular price. Get all the details here.

Source: DailyWealth