{"id":52715,"date":"2014-06-12T22:22:00","date_gmt":"2014-06-13T02:22:00","guid":{"rendered":"http:\/\/countingpips.com\/?p=52715"},"modified":"2014-06-12T22:22:00","modified_gmt":"2014-06-13T02:22:00","slug":"when-resource-stocks-are-this-bad-its-time-to-buy","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/06\/when-resource-stocks-are-this-bad-its-time-to-buy\/","title":{"rendered":"When Resource Stocks Are This Bad, it\u2019s Time to Buy\u2026"},"content":{"rendered":"
June 12, 2014<\/div>
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By MoneyMorning.com.au<\/u><\/a><\/p>\n

The financial services industry is like no other.<\/p>\n

We don’t say that in praise.<\/p>\n

It’s like no other in a bad way.<\/p>\n

It’s a pompous and self-important industry.<\/p>\n

Most financial advisors think the best way to help their clients is to ‘blind them with science.’ That’s junk. Investing isn’t a science; it’s common sense.<\/p>

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That’s something of which most advisors are in short supply…<\/p>\n

We’ve long had the feeling that most financial advisors aren’t in the industry to help people make money; they have other motives.<\/p>\n

They want to wear the sharp Italian suits.<\/p>\n

They want to wear the crisp English shirts, and the fine silk ties.<\/p>\n

But most of all they want to make themselves sound smart whenever they ‘talk finance’ with anyone. You only have to watch Bloomberg TV or CNBC to see this play out.<\/p>\n

Lots of stern looking faces with furrowed brows making it clear that only super smart people can understand what they’re saying. If you’re just an everyday investor<\/a> then don’t even bother<\/em> trying to understand it, because you won’t.<\/p>\n

As we say, there’s no other industry like it.<\/p>\n

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Plain English investing<\/strong><\/h2>\n<\/p>\n

When you hear professionals from other industries on TV — whether it’s a medical professional, an astronomer, or nuclear physicist — they seem to make an effort to put things in simple terms.<\/p>\n

They want you to know what they’re talking about.<\/p>\n

If only the finance industry were like that. Instead you get central bankers, fund managers, analysts and stockbrokers talking all sorts of nonsense, using terms and jargon no one else understands.<\/p>\n

Rather than hoping you’ll understand what they’re saying, they hope you’ll be awestruck by how smart they sound.<\/p>\n

Except they don’t sound smart. They sound like pompous idiots.<\/p>\n

So it’s a good job that every now and then you get a finance professional on the goggle box who puts it simply. It’s probably a sign of someone who is smart, who knows they’re smart, but doesn’t feel the need to show off about it.<\/p>\n

That’s our guess anyway.<\/p>\n

That’s the feeling we had yesterday when watching a brief five-minute interview with legendary investor and fund manager Mark Mobius.<\/p>\n

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‘Go where others fear to tread’<\/strong><\/h2>\n<\/p>\n

Mobius is the executive chairman of the Templeton Emerging Markets Group. Templeton is one of the biggest funds management firms around.<\/p>\n

Mobius has the right idea when it comes to investing. He makes it sound nice and simple, which of course for the most part it is.<\/p>\n

Here’s what he had to say on the subject of buying stocks in general:<\/p>\n

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‘John Templeton taught us, “Go where others fear to tread. Do what other people are not doing.” In other words go to the unpopular places.<\/em>’<\/p>\n<\/blockquote>\n

That’s exactly the approach we’re taking with the resources sector at the moment.<\/p>\n

Most investors don’t want to touch it. They can’t stand resources stocks<\/strong><\/a>. But in our view that’s what makes the resources sector the perfect contrarian investment.<\/p>\n

Go for the sector where others fear to tread.<\/p>\n

You only have to look at a chart of the S&P\/ASX 300 Metal & Mining index to see how much investors hate resource stocks:<\/p>\n

<\/a>
\nSource: Google Finance<\/strong>
\nClick to enlarge<\/a><\/em><\/div>\n

The index is barely above the 2008 crash lows. It’s as though folks think the world is about to die…that people will never build anything ever again.<\/p>\n

And yet that’s a completely ludicrous idea. For a start, even if China’s economic growth falls from 7.4% to 5%, its economy will still double in size within 15 years.<\/p>\n

And if the economic growth halves to 3.7%, China’s economy will double in 19 years. Despite this, investors are pricing resources stocks at going-out-of-business valuations.<\/p>\n

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Armageddon valuations<\/strong><\/h2>\n<\/p>\n

We don’t mind admitting that we’re banging a lonely drum when it comes to resources stocks<\/a>. But we’ll keep banging. Just because the mainstream can’t see the opportunity yet, is no reason to back away from a fundamentally sound reason to like resources stocks.<\/p>\n

Heck, we liked the resources story so much that last December we agreed to take on the role of publisher for Port Phillip Publishing’s flagship resources investment advisory, Diggers and Drillers<\/em>.<\/p>\n

We figure that folks will start to get the message soon enough. Of course, we don’t expect many to buy in now, while resources stocks are near rock bottom. Experience tells us that even most self-described contrarian investors aren’t really<\/em> contrarians.<\/p>\n

They’re mostly momentum investors. They prefer to wait for others to take the plunge first. Once they see the stock price going up, then<\/em> they’ll jump in.<\/p>\n

That’s OK. Providing they don’t leave it too late. After all, as Mark Mobius said about emerging markets — which you can also apply to the resources sector<\/a>:<\/p>\n

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‘The whole idea of being in emerging markets is to capture that growth.<\/em>’<\/p>\n<\/blockquote>\n

Remember that. When you buy into a risky investment, the main reason for buying that stock is in order to get big capital growth. In return for the chance to make a big gain, you’ve got to accept the potential for a big fall.<\/p>\n

And yet many investors will buy into a speculation hoping to double their money quick smart, but then almost immediately panic and sell the moment the stock price falls more than 5%.<\/p>\n

Resources stocks — like emerging markets stocks<\/a> — are all about the growth opportunities. That’s the whole idea.<\/p>\n

We’ll agree that resources stocks may not look appealing right now. But that’s the point. When would you prefer to buy them? Perhaps when the market is soaring again and China’s economic growth is in overdrive?<\/p>\n

Or would you prefer to buy them today, when the stock prices are trading for cents on the dollar in a beaten down market, and when investors are pricing stocks at Armageddon valuations?<\/p>\n

This really is a no-brainer decision. Buy resources stocks. Buy them now.<\/p>\n

Cheers,
\n Kris+<\/a><\/strong><\/p>\n

Join Money Morning on Google+ <\/u><\/a><\/strong><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nBy MoneyMorning.com.au<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au The financial services industry is like no other. We don’t say that in praise. It’s like no other in a bad way. It’s a pompous and self-important industry. Most financial advisors think the best way to help their clients is to ‘blind them with science.’ That’s junk. Investing isn’t a science; it’s common […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-52715","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/52715","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=52715"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/52715\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=52715"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=52715"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=52715"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}