How to Build Wealth During Turbulent Stock Markets Part I

8/3/2019 How to Build Wealth During Turbulent Stock Markets Part I

1/3

Title:

How To Build Wealth During Turbulent Stock Markets, Part I

Word Count:

1268

Summary:

There is Much Greater Geo-Political Instability Today than 20 Years Ago

In mid-2006, the global markets corrected a great deal. In the U.S., the Dow plummeted 4%, the Nasdaq

about 6%, and the S&P 500 about 5% in a single week. European stocks posted their biggest drop since May

2003, and the FTSE 100 in the UK had its biggest two-day loss in 3 years. And that was just the beginning

of very turbulent times in the global stock market that destroyed billions of dollars of cap...

Keywords:

safest places to invest money, achieve financial freedom, advanced wealth planning techniques

Article Body:

There is Much Greater Geo-Political Instability Today than 20 Years Ago

In mid-2006, the global markets corrected a great deal. In the U.S., the Dow plummeted 4%, the Nasdaqabout 6%, and the S&P 500 about 5% in a single week. European stocks posted their biggest drop since May

2003, and the FTSE 100 in the UK had its biggest two-day loss in 3 years. And that was just the beginning

of very turbulent times in the global stock market that destroyed billions of dollars of capital. On the other

hand, during this time, in Asia, the HK Hang Seng index was up 22% for the year, the South Korean index

was up 55%, the Australian markets were up 31%, and China was up 50% over their 12-month lows.

Then for the rest of the year, the U.S. and global markets grew even further and almost every investor had

long forgotten about these drops until a historic 9% single day drop in the Shanghai markets triggered aglobal market decline in the 1st Quarter, 2007 (though the explanation truly is not this simple).

When we experienced the first drop in 2006, the U.S. was allocating $2 billion to shore up its borders, major

conflict still was raging in Iraq and Afghanistan, and Venezuela had increased the top royalty rates on oil to

33% from 16.67% after raising this rate from just 1% in October, 2004. In Bolivia, Evo Morales had

followed his friend Chavezs lead in protecting national assets, and nationalized his countrys oil and natural

gas resources. And in Mexico, political unrest, according to Subcomandante Marcos, was the worst since

1994 as Mexico neared its next Presidential election. Still that wasnt even the worst of it.

In Iran, the threat of nuclear confrontation with Israel and the United States loomed, and in the U.S., record


2/3

trade deficits, and a falling dollar waited ahead.

Well despite the recent bouyancy in the global markets, I still believe that we may see the worst to come.

Why? Just read the paragraph above. Nothing much has changed in 2007 from back then regarding the

above. So in response, I have been shifting significant portions of my clients assets into several areas for

protection. But not just for protection but to profit greatly when more turbulence hits.

When severe market corrections occur, the biggest mistake individual investors make is to panic sell during

these market corrections and then buy back in after the market bounces back significantly. Thats the worst

thing you could do - Sell low and buy high -yet millions of investors responded exactly in this manner. But

yet if you are mainly invested in Europe and the U.S., you need to rebalance your portfolio now because you

will be punished for such short sightedness when other major corrections occur in the future or if this current

one continues after a slight bounce higher this past week.

So What is an Investor to Do?

The first thing one needs to do is to stop listening to the advice of large investment firms. Investment firms

will tell you that its impossible to time the market and that to remain fully invested at all times is a much

better strategy. First of all, if you go back and read my blogs for the past couple months where I repeatedly

warned people to prepare for a market correction, and specifically told people to start buying inverse funds

on the U.S. index youll know that it is possible to predict market corrections. After all, I wasnt the only

person saying this.

The reason most investment firms tell you that its impossible to market time is that often they dont get paid

on non-invested assets, and even when they do, who would ever want to pay management fees on cash?

Recently, friends asked me to take a look at their portfolios and to provide them with advice. What I saw

was predominantly domestic portfolios (i.e. if the investor lives in the U.S. almost all the stocks our

American stocks, if the investor lives in Singapore, almost all the stocks are Singaporean stocks, if the

investor lives in London, almost all the stocks are U.K stocks, etc.). These are the types of portfolios that

will get punished again in the future.

I remember reading an article in 2006 about a big producer at another American firm that shifted 70% of all

his clients assets into China, but all through Chinese mutual funds. I hate mutual funds and the thought of

owning mutual funds in emerging markets (but thats an article for another time). People should always own

stocks, not mutual funds. Mutual funds are the lazy way out and youll get punished for being lazy. Its just

not the way to benefit from these rapid growth markets. In fact, Im fairly certain that when the Chinese

markets corrected these past couple of weeks , all of this managers client portfolios were severely punished.

So where should your money go? Due to all the political unrest, Im looking at the defense sector. And due

to all the geopolitical unrest, Im looking at precious metals. Given the global market corrections, Im

looking for continuing opportunities in China of course, as well as some in Brazil, Mexico, Vietnam, France,


3/3

Australia, the U.K. and Canada. However, the best protection in turbulent markets is really yourself.

What do I mean?

The single most critical factor for building wealth is undoubtedly to learn how to do it yourself.

If you think about it, when was the last time a friend of yours ever told you, my financial consultant saved

me so much money during these recent corrections its unbelievable!. All I ever heard when I worked at

these firms during strong downturns, was every single one of my clients is down 25% this year. Yet I

know lots of individual investors that manage their own money that will come out of these recent corrections

just fine.

To tell you the truth, the best protection your stock portfolio has against a strong market downturn is your

own brain. Financial consultants that work at large firms neither have the time to adequately protect your

portfolio against strong downturns and the bottom lines of the firms they work for are not adequately

motivated by protecting accounts against market turbulence.

When turbulent markets happen, all the myths that global investment firms propagate are exposed. Market

timing is bad; diversification is bad; foreign markets are risky; and asset allocation, not individual stock

selection is important- all come to light for what they are myths. Even if the Shanghai markets corrected

9% in one day of which some of these losses were recently recouped by rebounding markets, this correction

is irrelevant if all the stocks youve bought in the Chinese markets were up 70% to 100% at the time the

correction came.

During turbulent times, youll see that diversification is not important, but that selecting the right individual

stocks in the right individual markets at the right time is what is truly important. Most financial consultants

will try to spin losses by saying that diversification saved your portfolio from further losses, but the fact of

the matter is that if they had been focused on the right stocks in the right asset classes in the right markets,

instead of possibly having all profits wiped off the board by this recent correction for the fiscal year 2007,

you would still be sitting on some decent profits. So whats the best advice I can give you for protecting

your stocks during turbulent times? Three words - Do it yourself.

Send large email
http://www.filocity.com/http://www.filocity.com/

Documents

How to Build Wealth During Turbulent Stock Markets Part I