We’re surprised that so many people appear to be so surprised.
For months, folks were talking about how the market was too expensive.
They said the rally couldn’t go on forever.
They said that stocks must fall.
Stocks have fallen.
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And yet, the sudden drop appears to have surprised them. We don’t get it.
But we’re not surprised. We knew the market would fall. That’s not hindsight; it’s fact, because that’s what stocks do. They go up…and they go down…and hopefully back up again.
And we know this will be a controversial call in this market, but our bet is that soon enough stocks will be on the way back up again. Perhaps the US market has already started its comeback. But for some investors that won’t be good enough.
They’ll have already sold their stocks. They’ll hold cash. Then they’ll spend the next 10 years wishing that stocks would fall…
Two months ago, we launched a new premium investment advisory, New Frontier Investor.
The premise of the advisory is that a huge change is happening in the world economy. If our forecast is right, it could be the biggest economic change in 124 years.
It involves the rise of China and other fast-growing emerging markets. These economies will grow so big and fast that they’ll soon exceed the size of most western European economies, and the US economy.
And yet, despite the prospect of this once in a generation event, most investors just don’t have the patience to stay in it for the long term.
Compounding your returns with shares
Every step of the way, emerging markets analyst Ken Wangdong explains that some of the biggest gains can come to investors who have the patience to wait.
We’ve used history as an example to show how stock returns can compound in a relatively short period.
Sure, we’re not talking day-trading style returns. And we’re not talking about getting in and out of a stock in a few days or a week.
These are longer term investment ideas.
But when we say longer term, we don’t mean a stock you have to hold for 100 years. This isn’t one of those silly managed funds set-ups that talks about buying a stock in 1901 and holding it until today.
Let’s be real. What individual has ever done that? Not one.
The examples we’ve used to show the potential of building long term wealth don’t cover centuries, rather they cover five, 10, 15, or sometimes up to 30 years.
Yes, that’s a long time. But think about it. If you’re in your 30s, 40s, 50s, or even 60s, odds are you’ve got a lot of years ahead of you. So devoting a part of your portfolio to longer term investments makes sense.
And yet, just two months after launching the New Frontier Investor service, we’re already starting to get letters. These letters want to know why the stock tips haven’t already gone up by quadruple-digit percentage gains.
Not the first time this has happened
This experience is why the recent stock selling action doesn’t surprise us.
For all the talk we hear from many investors who say they have a long term view, the reality is that most investors have incredibly short term views.
The smallest fright about the economy and investors are quick to sell without thinking twice.
So when emerging markets stocks have taken a hit in recent weeks (along with the Aussie market, we’ll add), most investors forget about the long term plans. They suddenly decide they’re a day or short term trader…buying today and selling tomorrow to make a few hundred bucks.
Meanwhile, they’re potentially missing out on the biggest gains they’re ever likely to see…for the sake of not having the patience to see out the short term volatility.
In this eletter, you should have read countless examples of how shares can compound their returns over time.
We’ve shown you examples of Intel [NASDAQ:INTC], which has gained 28,507% over the past 36 years.
Or Amazon.com [NASDAQ:AMZN], which is up 18,873% over the past 17 years.
Then there’s Union Pacific Corporation [NYSE:UNP], which has gained 3,612% since 1978.
And of course, Microsoft [NASDAQ:MSFT], the king of computer stocks, which has gained 46,288% since 1988.
Yet here we have some investors who give up on long term investing after less than two months!
Looking for outsized returns
Make no mistake. A huge change is happening.
It’s happening now, and it will take shape over the next few decades. If our predictions are right, the gains investors have seen from the US market over the past 40 years will happen again. Only this time they’ll happen in the emerging markets.
But don’t for a minute think that emerging markets opportunities are just a ‘decades-away’ opportunity. There will be shorter term opportunities too, especially if China continues to crave the ‘stimulus bug’.
We saw this report come from CFD and FX firm, IG this morning:
‘We have never had a clearer example of the adage the ‘market is always right’ than what happened with China overnight.
‘It is yet to be confirmed, however Sina.com has reported that the PBoC [Peoples Bank of China] has provided an additional CNY500 billion (approximately US$81.4 billion) of liquidity to the five largest banks in China. Each will receive CNY100 billion through standing lending facilities, with a three-month expiry according to the one reported analyst in the know.’
What have we told you for a long, long time?
The era of money printing and low interest rates will never end. World famous economist, and presenter at the World War D conference this year, Jim Rickards agrees with that view.
He recently posted a similar message about low interest rates on his Twitter account.
Look, money printing and low interest rates won’t mean that stocks will rise in a straight line. All markets in any condition will have up days and down days. They have rising trends that last longer than you expect, and falling trends that last longer than you expect.
Long and short
When you invest, you shouldn’t think about your portfolio as one big investment. You need to break it down. You break it down by asset class, but also by return horizon.
Some stocks are long term investments. Other stocks are short term investments. One of the biggest mistakes investors make is to invest their whole portfolio in either long term or short term investments.
That’s why they get into trouble when the market crashes or trends ‘the wrong way’ for a considerable time.
If you really want to make something out of investing, you need to take a different approach. Take part of your portfolio and use it for longer term ‘megatrending’ investments.
With another part, allocate it to shorter term stocks.
It’s not a difficult approach. It just takes the discipline to not panic when all the headlines are screaming at you to sell.
Cheers,
Kris+
PS. One analyst who has played the money printing trend like a peach is small-cap stock picker Tim Dohrmann. Recently, one of his stock tips racked up a triple-digit percentage gain. It’s not the first small-cap stock to have done so this year and it likely won’t be the last. Check out more here.
The post Why You Should Invest for the Long and the Short Term appeared first on Stock Market News, Finance and Investments | Money Morning Australia.
