One important part of value investing is to keep trading costs down. One way we can do this is to invest in good value shares so we don’t need to that much. Let’s buy and hold good value for the long term. When we let value help us select our investments we are also less vulnerable to being misguided by bankers or brokers with conflicted interests.
There is a good chance you read how Martin Shkreli became the most hated man in America because of his price gouging with pharmaceuticals. Yet he was arrested for securities fraud.
The fact that Shkreli was linked to both financial services and health care is not surprising because health care and investment services share a connected theme.
The problem in both industries is that they are rife with conflicts of interest. The conflict stems from the fact that health care givers and financial advisers are also both sellers of health care and financial services respectively.
An old saying is “If you ask a hammer for a solution, the answer will always be a nail”.
A New York Times article “Why Investors Are Right to Be Distrustful” shows once again how when we need big banks and brokers to help, they hurt investors, even their customers, instead.
This article explains how many banks and financial firms, like JPMorgan, steer customers into expensive in-house mutual funds and hedge funds, even when better, less expensive options are better. Firms are at least supposed to let their clients know of the options. JPMorgan, from 2008 to 2015, did not and due to numerous pervasive conflicts agreed to admit their wrongdoing, pay a settlement of $307 million and improve their disclosure process.
Regretfully this is nothing new. I recall a friend who was a broker for Merrill Lynch in Hong Kong in the 1970s. He was regularly grumbling because Merrill had a pay system that forced him to push shares that were not in his client’s best interests. As I recall he had a three tier system: A shares, B shares and C shares. Merrill wanted him to push the “A” shares as these paid the highest commissions. Plus at the end of each pay period he was expected to have sold a certain percentage of “A” shares. The problem my friend had was that the “A” shares were often really lousy investments, so he could not honestly do what Merrill demanded AND look after his client’s best interest.
There are ways to beat this problem. When we started our new course on value investing, I decided to find the least expensive way to invest in good value, for even the smallest investor. At our October 2015 Value Investing Seminar I outlined a portfolio of 17 good value, Country ETFs. This portfolio was created based on my 50 years of experience and research from several of the sharpest, good value mathematicians.
According to the analysis I put together, the equally-weighted combination of these ETFs offers one of the easiest ways to attain the highest expectation of long-term risk-adjusted performance. In fact, with time above average performance is almost guaranteed.
The chart below, by Keppler Asset Management shows how after just 18 months this type of portfolio has a 75% chance to outperform the Morgan Stanley MSCI World Index of shares. After three years the odds are 85% that this portfolio will outperform the MSCI World Index and after eight years the odds rise to 95%.
The keys to this portfolio are good value, low cost, minimal fuss & bother. Plus a great savings of time. Trading is minimal, usually not more than one or two shares are bought or sold in a year. I wanted to find the very least expensive way to create and hold this portfolio so I performed a test.
Research put every part of this portfolio in place, except knowing the best, easiest and least expensive way to buy. A search for an optimal way to buy and hold boiled down to two methods. One tactic to test was to use a unique online broker that appeared to offer the lowest cost deal. The other approach was to use a community bank in Smalltown USA. The small town bank that I use looks after my 401K trust account and their service is first class. The benefit of small banks is that they still treat us as a human beings (instead of a number) and when we need, it’s easy to go right to the top to answer a question or get a problem resolved. There are no call centers. The bank and the person looking after my account is just around the corner.
I set up the order for the 17 country ETFs online, while my trust manager set up orders for the identical amounts of the same shares in his system. Then we got on the phone, coordinated our timing and on a count of three each pushed the button “BUY”.
I am sharing the results of this test with Pi (Purposeful Investing) subscribers this week and want to offer you a chance to subscribe to Pi before I release these results. The savings you can gain on any purchase of 17 shares has the potential to be more than the cost of the Pi subscription. Learn below how to join us with Pi.
Regardless of whether you subscribe and review the test, here is the portfolio that I have invested in for your review.
Beware of medical practitioners and investment advisers who offer services, products or procedures that give them income and profit. Their advice may be conflicted. Rely instead on value and mathematics. They always reflect truth.
Last Friday our shopping cart provider had a problem that stopped many of you from taking advantage of our special free seminar offer, so I have extended this opportunity, that ended Sunday, through today.
Golden Rule of Investing #3 is that there is always someone trying to steal from you.
Recent bad banking news fortifies this fact and shows that the bad guys are often the biggest of the establishment. The Wall Street Journal announced bad banking news in a recent article (1).
Gary Scott at Jyske Bank’s Trading Hall.
For more than two decades I visited Jyske Bank’s Trading Hall.
One lesson I learned was that I did not want to trade against this team of experts backed by huge amounts of capital and the most modern facilities. However I always believed that Jyske, a small bank in global terms, had a great deal of integrity.
Such honesty has been lacking in the bigger international banks.
The bad news is that as reported by the Wall Street Journal, Morgan Stanley is quietly increasing its fixed-income trading business to help Chairman and Chief Executive James Gorman hit long-held profitability targets.
The bad news is that Morgan Stanley nearly collapsed in late 2008, when it lost a fortune in such trading.
In February this year Morgan Stanley agreed to pay $2.6 billion to settle claims linked for misleading investors with mortgage-backed securities issued before the financial crisis and its part in the housing bubble that triggered the 2008 financial crisis.
In April the bank was fined $2 million for inaccurately reporting its short positions — bets that certain stocks would fall — over six years. It was claimed that during one 13-month period, the bank failed to report short positions on nearly 4 billion shares held in foreign affiliates.
In May 2015 the bank agreed with the Attorney General of New York over the payment of about $500 million to settle claims for misleading investors.
Do we want this bank that might be advising us (or the broker we use) to now be trading against us?
I am not just blaming Morgan Stanley. They are at the bottom of a list of major US banks in terms of mortgage-related fines. Bank of America and JPMorgan Chase were much more involved in the mortgage scandal. They paid $73 billion and $26 billion respectively to settle claims, while the losses of Morgan Stanley were estimated at $4.5 billion.
Last year Goldman Sachs was fined for over pricing rule violations stemming from its “dark pool,” marking the latest in a string of recent enforcement actions targeting anonymous trading platforms.
Regulators claimed that Goldman’s dark pool executed nearly 400,000 trades that were at inferior prices, in violation of investor protection rules designed to ensure customers are getting the best deal.
About the same time, New York Attorney General filed a lawsuit against a Barclay’s Bank dark pool alleging more serious violations, including claims that Barclays lied to investors by giving high-speed traders unfair advantages, even though the bank had pledged to police the pool for “predatory” trading.
The intentions of management at most big financial institutions must be suspect. The systems have been focused on enhancing the girth of their own wallets rather than those of account holders.
In another case, UBS, Citbank, Barclays, Deutsche are some of the banks who have paid more than $9 billion to settle allegations that some of their traders manipulated Libor and other related interest rate benchmarks.
This is one more example of greed dominating the history of investment trading. Since equity trading began, there has been a never ending battle between authorities and unethical trading. Every time a loophole is closed, another is found. We cannot depend on the authorities to totally protect us as investors. Nor can we expect our banks and brokers to protect us either.
This leads back to the Golden Rule of Investing #3. “There is always someone trying to rob you when you trade“. This is why I have a relentless search for value, buy and sell as little as possible and invest in long term strategies that can be slow to evolve.
Robbers will try to tempt you with great stories of how to make fast bucks. Sometimes they are true, but more often misleading at the best and downright dishonest or even worse.
We cannot eliminate the big banks nor can we do much to change the system. However, we can protect ourselves by recognising banks as a necessary evil and avoid trading and speculation as much as possible.
Is this the multi currency investment’s darkest hour when a double dip will increase opportunity?
Here is a chart showing how the Dow Jones Industrial Index ended down last week. See a similar chart below that shows why this could be good news for many.
Since it is Monday, let’s start this week by recognizing that this correction has been suspected and that historical research suggests that this is the darkest hour before the light at the end the global economic tunnel appears.
You’ll see below that the current stock market volatility and economic slow down are to be expected…are completely natural and in perfect order. This is a time of great opportunity…not of disaster.
This site has continually reviewed the 15 to 17 year economic cycle as outline by Austrian economist, Joseph Shumpeter. The global economy (and US stock market) enjoys an approximately 15 year bull…. then about a 15 year bear (a period of no growth) and then moves back to start a 15 year bull. These stock market bull and bear cycles are based on cycles of human interaction, war, technology and productivity.
At our June 2011 International Investing & Business seminar we looked at how the US equity market is currently about 12 years into the 15 year trend.
We then compared the last 15 year bear cycle That began in 1968 and saw that after 12 years from October 1968 to April 1980 the US stock S&P index had dropped -7.7% in 138 Months.
Then we saw how from the beginning of this bear cycle from December 1999 to June 2011 the S& P was down -11% in 138 Months.
Then we looked at this chart from Moore Research Center, Inc. to see what to expect from June 2011 to June 2013 if that period compares with June 1980 to 1982. The historical story tells us to expect a large drop.
Notice the similarities between the market in early 1980 (Blue Line) and the current Dow above. There is a strong synchronicity.
A strong 1999 to 2013 bear?
See how to get a FREE recording of the June seminar and how to attend our October 7-8-9, 2011 International Investing and Business Seminar.
If history is our guide, some great new innovation or innovations will then ignite 15 year bull beginning in 2013 to 2014.
This is good news for retiring boomers who manage not to be wiped out from the next several years of sideways and downwards motion.
This is great news for long term investors who can pick up incredible bargains now.
Here is how these cycles seem to work.
Step #1: An economic downturn enhances a war or threat of war. Struggles for survival in the war (like the Civil War, WWI, WWII and the Cold War (WWIII), super charge inventiveness that creates new forms of productivity…the steam engine, the internal combustion engine, production line processes, jet engines, TV, farming techniques, plastics, telephone, computer and lastly during the Cold War, the Internet.
Step #2: Each new invention helped win a war. Shifting the technology to domestic use… after the war… created a boom.
Step #3: Each boom leads to excess.
Step #4: Each excess led to a correction. The correction creates an economic downturn.
Step #5: The economic downturn enhances a war or threat of war.
Here we are… in the correction… at the correct time when we should expect that another war (or threat of war such as the Cold War) should begin to build! This latest downturn started almost exactly (1998), 16 years after the last boom began (1982)…which began after the last great human struggle called the Cold War.
If the cycle repeats, the struggle should build now due to the poor economy. If the cycles repeat then the bottom is around 2013. Everything will seem bleakest… darkest…blackest and this will be the best time of all to invest… hence my light suit!
This Morgan Stanley graph shows these cycles.
The solutions could be the small stuff (nano tubes) or large sun reflectors tied to earth that generate energy. Whatever, large or small, the opportunity they create will be huge.
We are betting on water, natural health, agricultural real estate, good value US real estate and Ecuador real estate… because we understand these.
You should look for innovations that you understand that could rock the world.
If markets continue to fall. If the global economy stalls. If there is increased unemployment and turmoil… we cannot do much about this.
We can… if we see what is likely to come, be prepared so we can think out of the box and invest and do business in places most likely to be at the forefront of the next social economic expansion.
These are the times of greatest opportunity for the small guy when the old order that has taken advantage of the system lets go and a new order led by new blood continues humanity’s evolution.
Use our Multi Currency Portfolio Service in the year ahead.
See ways to earn globally with our online courses.
See an Ecuador visa warning and see ways to gain in Ecuador from the turmoil in the Western world.
Sustainable investments are not small stuff but… small stuff may create the best sustainable investments in this new era.
Jyske seminars are really informative. I especially enjoy them… getting to speak, getting to hear the other speakers and then getting to spend extra time with many of these speakers.
This year’s Jyske seminar in Copenhagen had an added benefit (for me) because two speakers had quite differing views on America and the importance of innovation.
Gary Scott speaking with David Darst.
The first speaker was David Darst. David Darst is managing director and chief investment strategist at Morgan Stanley Smith Barney with responsibility for asset allocation and investment strategy. He was the founding president of the Morgan Stanley Investment Group after he joined Morgan Stanley 14 years ago from Goldman Sachs where he held senior management posts within the Equities Division and earlier, for six years as resident manager of their private bank in Zurich. He earned his MBA from Harvard Business School and was awarded a BA degree in Economics from Yale University. He has lectured extensively at Wharton, Columbia, INSEAD and New York University business schools. For nine years he served as a visiting faculty member at Yale College, Yale School of Management and Harvard Business School.
David is an incredibly powerful speaker and a key point in his speech was that the power of American innovation could create a huge positive economic recovery and offered excellent investing opportunity.
The other speaker, Jeff Rubin, had a differing view. Jeff stated that the US was in a secular decline (the definition is Declining consumer prices – Declining real estate prices – Declining stock market values) and that American innovation will not create a recovery.
Jeff Rubin and speakers at Jyske Copenhagen Global Wealth seminar.
See other Jyske speakers, Gary Scott… Steve Forbes and Ken Rogoff on… Jyske TV.
The Small Stuff can be huge!
I wore a light colored suit and removed my tie when I spoke at Jyske’s seminar because I wanted to be the guy with the white hat! If we abolished neckties we could probably turn air conditioning up a degree or two everywhere, the energy savings would be huge!
Everyone else… as a banker or economic analyst had to be dressed in dark or black. We writers get certain liberties and my message was as upbeat as can be… “There are few times as ripe with opportunity now”.
A double dip will only increase opportunity!
This site has continually reviewed the 15 to 17 year economic cycle as outline by Austrian economist Joseph Shumpeter. The global economy (and US stock market) enjoys a 15 year bull…. then a 15 year bear (a period of no growth) and the moves back t start a 15 year bull. These stock market bull and bear cycles are based on cycles of human interaction, war, technology and productivity.
If the cycle repeats, the struggle should build now due to the poor economy. If the cycles repeat then the bottom is around 2012. Everything will seem bleakest… darkest…blackest and this will be the best time of all to invest… hence my light suit!
One of David Darst’s graphs showed these cycles.
The solutions could be the small stuff… like removing ties… or even smaller… really tiny… itty bitty. Yet the opportunity they create will be huge.
For example look at the war on oil based energy in a September 2010 article by Peter Pachal at Device.com entitled “Scientists discover tiny solar panels that create themselves”.
The article says: File this one under “holy crap,” but scientists at MIT have discovered molecules that spontaneously assemble themselves into a pattern that can turn light into electricity — essentially a self-creating solar panel. In a petri dish.
The researchers set out to create a synthetic process that imitates photosynthesis. Certain molecules respond to light by releasing electrons; the trick was discovering a substance that sticks them together in a consistent structure. Phospholipids do just that, and they also attach themselves to carbon nanotubes, which conduct electricity. With the nanotubes holding the phospholipids in a uniform alignment, the photoreactive molecules are all exposed to light at once, and the tube acts as a wire that then collects the resulting electrical current. The most interesting part is that the tiny solar array can be disassembled and reassembled just by adding chemicals. Spray on an additive and the molecular components break apart into a soup; remove it with a membrane, and the system spontaneously puts itself together.
Tiny nano particles in a petri dish that could change our entire world.
How about a war on bacteria. Here the answer may be in the small stuff as well.
A September 2010 National Geographic article by Christine Dell’Amore entitled “Cockroach Brains May Hold New Antibiotics?” says: Insects naturally kill deadly MRSA and E. coli bacteria, experiment shows.
Cockroaches may make your skin crawl, but the insects—or, to be exact, their brains—could one day save your life. That’s because the central nervous systems of American cockroaches produce natural antibiotics that can kill off bacteria often deadly to humans, such as methicillin-resistant Staphylococcus aureus (MRSA) and toxic strains of Escherichia coli, scientists said this week. Two species of locust tested so far also have the same bacteria-killing molecules in their tiny heads. The findings suggest that the insect world—which makes up 80 percent of all animals on Earth—may be teeming with new antibiotics, said study co-author Simon Lee of the University of Nottingham in the U.K.
Such a discovery is crucial, because scientists are scrambling to combat strains of several infectious diseases, including MRSA and E. coli, that are resistant to traditional antibiotics, Lee said.
The scientists found the bugs had antibiotics only in their brain tissue, the most essential part of the body, he added. A bug might live with an infected leg, for instance, but a brain infection would almost certainly be fatal. Insect-brain drugs for humans are still years away, Lee said, but there’s one hopeful glimmer: When the team added the insect antibiotics to human cells in the lab, there were no toxic effects.
On the subject of bugs, National Geographic also pointed out some small stuff that could be huge. In this case the war on hunger could create a huge quantum economic shift and the technology for innovation is already available.
According to the September 9th, 2010 National Geographic, the UN’s Food & Agriculture Organization (FAO) is working on a policy to promote insects as food worldwide. The article says: Beetles, crickets and many other types are very nutritious. A serving of small grasshoppers has almost the same protein as ground beef. Also, insects can be farmed more cheaply and on much less land. At least a 1,000 species are already part of the human diet. Mexicans liquefy stinkbugs for sauces, Thais deep-fry giant water bugs.
For example, 100 grams of giant water bugs yields 62 calories, 19.8 grams of protein, plus phosphorus, iron, calcium and carbohydrates.
There you have three potential wars… and small stuff that could change the world… in positive and explosively profitable ways. I have to agree with David Darst in this case. The USA has a huge innovative streak. this is the one nation where failure can be viewed with respect.
Which war… or combinations of wars will change the world? I do not know… yet. Which small solutions will be huge? I do not know that either. Which companies will be the winning suppliers of the solutions? That is also still beyond me.
What I do believe is that taking the positive approach is the only one that makes sense…. so watch the problems… the wars and the solutions. This is where the next huge fortunes will be.
Cockroach Brains May Hold New Antibiotics?