Small cap and Micro Caps are the new BIG in investing!

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Diversify young man, diversify!

That has been the mantra of the entire investment industry for 40 years now. However the cracks in the dam of diversification widen immensely when the markets go sideways, or begin to fall, as they are this year (and probably for years to come). Here are some reasons why diversification may well be a huge money pit over the next few years.

In a previous article, I explained how average investors are getting screwed by the mutual fund industry.

Ten years ago, if you invested in most diversified mutual funds, you would have made approximately zero on all your investments to date. (Ten years of ZERO!!!) The mutual fund industry is the most bloated, overpaid and valueless industry in the world today, in this writers humble opinion. They charge you fees from 2-4% for essentially "not managing" your investments. Many of the managed mutual funds out there are actual closet indexers (they follow the index of the country or market they are invested in by buying the large cap stocks as they appear in order in the index) You would do better simply by buying an index fund yourself and paying the .05% fee instead of 3-4% fees. Why is that?

Well there are several reasons for this behavior not the least of which is the fact that (and this has been subject of scientific studies) a trained monkey, picking stocks over an extended period utilizing diversification, on a statistical basis, does as well, within 1 or 2%, as almost all of these fund managers.  In other words, they have no specific skill in picking stocks using diversification.  Diversification works when there is a bull market, but there is no protection when markets plunge (as in 2000 or 2008) and the next two years could be absolutely devastating for fund investors.  That is probably why there has been $50B (approx) removed from these funds over the summer. Being long term investors, most of those won't be back to the market anytime soon unless it is to pick specific stocks in small bull markets.

There have been many studies over the years in regard to this. In the current market, being manipulated by governments around the world employing Quantitative Easing (QE), large traders like GS, JP and the like using super computers and flash trading, in a market notable only for it's very thin trading, the word that comes to mind is "fraudulent" when it comes to stock prices, especially the large cap supposedly "blue chip" variety.

The fund industry wants you to believe that diversification will be your investment savior, however many savvy investors today know too well how this industry works. Just ask yourself, were you diversified in 2000?  Were you diversified in 2008? Did your fund have investments in Enron? AIG?, Dot Bombs? Fannie? Freddie? Nortel?, JDS Uniphase? Citi, GM, Chrysler, AA, etc etc??? Did your funds make you "ANY" money at all? We need to change our thinking, now, and dramatically!

There is, in fact, a way to use this bloated industry, to pad your Retirefund over the next few years. There are indeed stocks out there, flying under the radar (thankfully) of this bloated industry, simply because no tainted ratings agency has noticed them (yet) or because these small caps are not yet big enough for the industry to promote to fund managers. I,m not talking about the \'under $2B\' range of stocks that the managers consider small cap. I,m talking about really small, micro cap entities that are forging niches in future markets that haven't hit the big time yet. That is where smart investors are looking in this market.

Find those gems that have a foot hold in new markets, are front runners with nimble and smart  management, in a market soon to be targetted by the big dogs of the fund industry.

Now you are on to something.   Something that truly makes sense, in a senseless market. Today, you have at your finger tips all of the technology you need and more. More than the so called experts have ever had in the past, so, use it! Do your home work. Dig for information, and evidence of advantage in micro caps, and stay on top of that information. Prosperity will follow.

Using this simple strategy last year, I advanced my own retirefund by over 220 per cent. Last month alone,  I doubled my money on one stock and I believe that over the next two months, it will double again.
This month another of our picks is up 36% on discovery of a new green tech energy process that may revolutionize how we deal with (and utilize) carbon emissions.

Are they all home runs? Of course not. Anyone who tells you they only hit home runs is lying through their teeth. However, if you hit a home run every 5th time at bat, then you will be a heavy hitter over the year.  If you get a single, a double or a walk on 3 of the other 4, you will win the batting championship, hands down.

Here's to your Retirefund!

HP

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Average investors are getting screwed and are exposed to the elements of Wall Street excess!

If you are Investing in managed mutual funds, your getting screwed. At very least, you are exposed to the elements and frozen in one spot.



Does your investment adviser think you should be in mutual funds? Does he work for the fund company? Is he more interested in "his" portfolio than yours? Is he texting on his blackberry while you are handing over your meager Retirefunds? does he forget your name? Did he ever know your name?

"The Rich" as Voltaire said, "Require an abundant supply of the poor"!

The monstrous mutual fund industry is built on a simple premise. You give your hard earned money to someone you know, usually only by reputation. That fund manager then invests your money in the markets, in stocks, bonds, gold, commodities and/or companies that are involved in any of these or a myriad of other businesses. Depending on the fund(s) prospectus (an explanation of how it invests your money), you could be invested in any country in the world (or group of countries) The fund manager is paid a salary along with all of his staff, and their company earns money by charging you a percentage of all monies invested. The manager can also earn bonuses based on his agreement with the company, whether he performs or doesn't perform.

Congratulations! You have just hired one of the highest priced bookies in history! They make money whether you win lose or draw. Usually it is lose or draw in the modern mutual fund industry.

Fully 60% of "all" fund managers "do not" beat the index of the market they are invested in. Many are "closet indexers". In other words, they say they are active managers but invest your money by simply matching the index (buying the companies that make up the Index in the exact proportion as they are weighted to the Index). Usually they collect anywhere from 2%-3% of your portfolio, every year, for this so-called management. Why do you keep shoveling your hard earned money into this bloated, gluttonous industry? There is no other industry out there that is so grossly overpaid for providing so little.

This industry got it's start at a time in history when average people were "shut out" of the information streams that made fortunes for those in the know. With the advent of the internet, trading platforms, trading software etc, those days are gone. At the beginning of this industry, managed mutual funds were developed as a way that average people could invest and "diversify" their investments like the big dogs always did when they bought individual stocks, but only with a savvy money manager in control of their savings. It was a good premise that, initially, worked for it's investors but it has morphed into a monster that eats billions of your dollars, every single year. Like every other investment scheme ever created by the Gluttons of Wall Street, it has been milked dry, to the point where it no longer resembles the initial product, and value has dried up like a lake bed in Death Valley.

Three distinguished professors of finance studied the returns of 2076 actively managed mutual funds over 21 years ending in 2006. Their conclusion: By applying a sensitive statistical test to separate luck from skill, the study found that 99.4% of the fund managers had no genuine stock picking ability.

Read more at: http://www.huffingtonpost.com/dan-solin/wall-street-packages-luck_b_283262.html

In other words, with today's information avalanche and trading software, "you" can pick stocks and do as well as most of these vultures .

If you feel you just don't know enough about investing or don't have enough time to research individual stocks, and you feel you must give your retirefund over to someone else to invest, then I promise, if you give it to me I will invest it in an "Index fund" which only costs .5% and I will only charge you .5% for my troubles. In that way you will already be ahead by 1%-2%. You will also beat 60% of "all" fund managers in the world and I will become rich on the shoulders of your hard earned money.

Or, you could just invest in the Index fund yourself and cut out the middle man (Me).
(Shoot, I just talked myself out of millions)

I hope you get the picture. (pun intended)

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Even a broken clock is right twice per day!

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There are investors and there are traders. Traders trade! Investors invest! However, there is one thing they have in common. None of them can "time the market". Truly, if they could time the market, many of the talking heads on CNBC would have made billions on last years crash, or this springs bounce, instead of keeping their jobs trying to sell us on the benefits of the "hot stock of the day".

For the average Joe or Jill, a good practice is to "Invest for the long term" in increments using dollar cost averaging (ie: have your investment money put into your favorite mutual fund every paycheck) so that you can level out the gyrations in the market. If you are a little bolder and want to do some of your own homework, then Invest in individual stocks of solid companies with great products, market niches and good management

No one is right all the time! Not even the investment greats like Warren Buffett or George Soros. If they make big mistakes, and they do, then how many more mistakes are made by the coffee fueled, adrenaline pumped, talking heads on CNBC (fast money, Cramer, Kudlow, Kneale etc) Just because you took their advice and got lucky once, doesn't mean they are going to be right next time. They make mistakes, just like you do. Just like I do. Just like we all do.

It is important to do your own homework when investing. If you don't feel you have the time or expertise and you just want to invest in mutual funds, then at least do enough homework to pick a good manager. Investing in mutual funds is essentially investing in good management. 60% of fund managers today "Do not beat the Index". In other words, if you just invested in a basic index fund, with a lower fee base (because it is tied to the Index of the market you are investing in) on average, you will beat 60% of the mutual fund managers out there who get fat fees, for their so called expertise.

Nobody sees a bull market in our near future right now, but remember this. Bull markets always climb a "wall of worry". Bull markets are never identified until most of the profits are already made. Bull markets love inflation. A weak currency (read u.s. dollar) always increases inflation. With the current trend to deflation, markets in turmoil, with investors sitting on the side lines and the Chicken Little's clucking that the "sky is falling", Now may be a great time for contrary investors to take the opposite view and invest in a basic Index fund that costs less than 1% in fees. Or maybe not!

You can always keep your dollars on the sidelines, where they are sure to lose value over time. You could invest in mutual funds administered by a good manager who's track record shows a consistant return better than the Index.

Or, you could act on the next hot tip from one of the talking heads on CNBC. After all, "even a broken clock is right twice per day"!

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Reviewing the best investment vehicle ever made! for the Average worker.

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In January, Canada introduced (What the banks like to call) the "Tax Free Savings Account". It is, in every sense of the words, a TAX FREE "INVESTMENT" ACCOUNT! (similar to a Roth IRA in the U.S.)

When I say it is the best investment vehicle ever built for the "average working stiff", (arguably, the rsp is a close second) that is because it has a limit of $5,000 per year that you can put in the account. Large and institutional investors aren't very interested, but I sure am, and so should you. Now here's why!

In this "after tax account" you can put cash, GIC's, money market funds, mutual funds, stocks, bonds or just about anything trading in the capital markets. Now here is the "Golden" part: Every single dollar you make in this fund is "TAX FREE" when you draw it out. Let me repeat that and expand upon it. In Canada, where the nominal tax rate for many middle class workers is 42%, your savings (read investment)income will not be taxed!!

You can put a maximum of $5,000 into this account every year and in the years which you find yourself short, you carry that amount into the proceeding years. In January I opened two such accounts one for me and one for my wife. We transferred the limit into each. In one account I bought stock in my favorite company (see previous posts) and since January, I have to date, booked a gain of 61%. That money is TAX FREE when I take it out!

Now even if you use this account in a more conservative fashion, let's say you buy an Index fund, or any mutual funds and you book 8% per year. When you draw it out it is, as I enjoy saying, "TAX FREE".

One of the best strategies for increasing wealth is to reduce your tax burden where you can. I have never seen a better vehicle for this strategy, for the average working stiff, since the advent of the RRSP (u.s. equivalent 401K).

If you haven't already, go (no run!) to your nearest bank or investment house and set up one of these accounts immediately. Fill it with your yearly quota faithfully, every year. Spread your investments around in it so that your retirefund is not all in one basket (buy stocks, bonds, mutual funds etc) (let me correct that, stay away from bond funds this year) If you are in your 20's (those who are truly in the "drivers seat"! more in future blogs) and you don't know much about investing, buy index funds initially. Do it every year, and your retirement will be sweet indeed.

Even if you are just saving up for a major purchase like a car, a home etc, this is the vehicle to use. So, USE IT!!

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