Why Investors Fail to Beat Market Returns
Issue #2219
- WEALTHY: A type of investing that consistently beats the averages (Michael Masterson)
- HEALTHY: Want to lose weight? Choose a carton, bag the bread (Kelley Herring)
- WISE: Roman Abramovich on investors
ALSO IN THIS ISSUE:
- Use the "Bucket Brigade" to keep your readers reading (Rich Schefren)
- 2 ways to avoid boring your audience (Peter Fogel)
- It’s Good to Know… about electric sockets around the world
- Add "agglomeration" to your vocabulary
How Much Money Can YOU Make By Copying This “Mistake”?
How did Vicki Smith accidentally “hotwire” the Internet and turn it into the goose that laid the golden egg?
Well, imagine a huge fortress with steep, heavily defended walls and a great big drawbridge to get through. Inside that fortress is the huge pile of wealth there is to be made on the Internet. Now imagine trying to scale those walls with no equipment and never having done anything like it before. That is what many people try to do…
But what did Vicki do? By mistake, she got “lost” and wandered around the back of that fortress and found a “hidden” door which led straight in. A solid gold door which opened up a gateway to riches…
It’s an opportunity which really does work, that anyone can follow and put into practice quickly in just an hour of your spare time from home.
Read about Vicki’s good fortune here…
- Patrick Coffey
"Investors have very short memories."
Roman Abramovich
Why Investors Fail to Beat (or Even Meet) Market Returns
My friend Marty is a typical investor.
He got into stocks in 1986, and sold out after the market crashed in 1987. He stayed out for several years, and then got in for a big ride as the tech boom accelerated. When stocks were trading at more than 50 times earnings, I urged him to get out. He waited until after the crash. The result: He was down almost half his original investment. He has been in and out of the market ever since, jumping from one investment advisor to another.
"I am embarrassed by my performance," he admitted the other day over breakfast. "I am afraid to tell my wife how little we have left in our stock account."
"What are you doing, stock-wise?" he asked me.
"I pretty much got out of individual stocks a while ago," I told him.
"Why didn’t you tell me?" he said.
"Two reasons," I said. "First, I’m not an expert on investing. And second, you don’t listen to me anyway."
He mulled that over.
"So do you think I should sell now?"
"I really don’t know," I told him. "But I do have a suggestion for you."
He was interested.
"I suggest you read a new book that’s just been published by Regnery Press. It’s written by a friend of mine. His name is Mark Skousen. He’s an economist and an investment advisor."
"Sounds heavy," he complained.
"It’s not. It’s actually a fast, easy read. And I think you’ll like the title. It’s called Investing in One Lesson."
I went on to tell Marty a little bit about the book…
In the first chapter, Skousen recalls a comment Peter Lynch made about the investing public. Lynch ran the Fidelity Magellan Fund, the most successful mutual fund in the 1970s and 1980s. But he said that despite the fund’s great success during that period, the majority of its shareholders lost money.
Why? Because they tried to time the market and never stayed fully invested. Whenever the market fell, they would panic and get out. Then they’d try to get back in after the price turned around. As a result, they were always chasing the price.
Recent studies, Skousen points out, confirm Lynch’s story. Since 1987, the average mutual fund has gained 13 percent a year (compounded). Yet the average fund investor has earned only 3.5 percent.
The reason is always the same. Individual investors can’t seem to stick with winning programs or funds. They get confused and flustered by the financial news and bail out too soon. Then they come back in too late. And then they do it again.
The problem, Skousen says, is that investors misunderstand a fundamental truth about the stock market: "The business of investing is not the same as investing in a business."
In Automatic Wealth I made the same point. The stock market, I said, is not just an agglomeration of financial spreadsheets, of profits and losses. It is a global, computerized casino where huge institutions (pension funds, mutual funds, managed accounts, etc.) respond instantly and automatically to hundreds (even thousands) of different matrices. And where millions of individual investors respond to any news about this institutional activity and about what other investors are doing.
It is very complicated. No wonder, Skousen says, that if you look at the Forbes richest 400 list, very few made their money from the stock market. Most "made their fortunes through creating and expanding their own businesses."
You have to respect an investment expert who gives entrepreneurship its due.
It shouldn’t be a surprise, Skousen says, that stockbrokers often do better than their clients. Or that managers of mutual funds do better in their individual portfolios. "That’s because investing is their business."
If you want to invest like the best fund managers (and beat the averages), Skousen has an answer. It is a "very simple strategy – a shortcut, if you will – that will keep you out of trouble and help your portfolio grow without devoting your life to investing."
As a businessman who doesn’t have time to become an expert in the stock market, I was interested to discover Skousen’s strategy. Though I haven’t been investing in individual stocks, I have been investing in no-load index funds. And I’ve been happy to earn a long-term return on those funds that’s been equal to the market’s long-term average of 9 percent. With the businesses I’m involved in growing at double-digit rates (and a real estate portfolio too), that’s satisfied me.
But Skousen’s strategy is better. He explains exactly why investing in a stock is not the same thing as investing in a business. He explains why technical investing is fatally flawed for most investors. And then he makes a persuasive case for a particular type of investing that has consistently beaten the averages.
It has elements of contrarianism in it, which I like. Contrarian investing lets you play the market against the mass of misguided, uninformed individual investors. It also has a good dose of fundamentalism in it. I like that, too, because, over the long run, the market has proven to regress to the mean. (Price-to-earnings ratios, for example, eventually influence the long-term pricing of the market.)
Skousen focuses on a certain class of stocks that are usually immune from fad buying. These stocks, he points out, represent less than 20 percent of all stocks that trade on the various exchanges. They are so neglected that they are not terribly affected by institutional moves and individual hysteria. And their prices are reliably connected to underlying value.
Can you guess what class of stocks Skousen is talking about?
If not, buy the book immediately and see if you aren’t persuaded, as I was, that he has found a smart way to approach the stock market. If you can guess what he’s talking about, read the book anyway. It will confirm your confidence in this stock class and expand your understanding of the market.
I won’t give away Skousen’s strategy here, because I want you to get the full effect of the argument he puts forth in this good book. As I told my friend Marty, it is a fast read – like a John Grisham novel. But it’s full of solid sense and helpful facts that will give you the confidence you need to follow his program.
I have bought a dozen copies for friends of mine who invest in the market. It will be in their stockings this Christmas. It might be a good idea not only to get a copy for yourself, but also for some of the people on your gift list. If you go to Amazon now, you’ll have your books in time for the holidays.
[Ed. Note: Get Michael Masterson's insights into becoming successful in your business and personal life, achieving financial independence, and accomplishing all your goals on his new website. You'll find updates on all of Michael's books, news on upcoming ETR events, Michael's blog, and room to send in your comments and questions. Check it out today.]
Make Big Real Estate Profits Now… Without Monthly Mortgage Payments!
There hasn’t been a better time to buy residential real estate in 15 years. But many would-be investors fear the cash crunch of making monthly payments… especially if a home takes months to sell.
But when you buy like Alan Cowgill, you won’t just avoid monthly payments… you’ll get a chunk of cash when you buy and when you sell! Best of all, you can do it without investing a dime of your own money, even if you have less than perfect credit.
And that’s just one of the powerful techniques you can use to make 6- and 7-figure profits every month, in this market or any market.
Click here to learn more about these lucrative secrets…
Phrases That Keep Your Reader’s Attention
Getting a prospective customer’s attention is harder than ever.
But it gets worse. Because once you get his attention, your job as a marketer has just started.
You see, the real trick is to hold onto your reader’s attention long enough to get your sales message across.
My good friend and world-class copywriter John Carlton says: "The most common blunder rookie copywriters make is to assume the reader will ‘hang in there.’ Your reader will not hang in there. At the very moment you bore him, confuse him, or ask him to ‘bear with you’… he’s out of there."
Think about it: Doesn’t your own experience confirm it?
The truth is, readers don’t bail on your blog post, e-mail, or sales letter and then come back to it again later. Nope. Once you lose them – chances are they’re gone for good.
However, don’t take my word for it. Just check your website’s bounce rate (the percentage of single-page visits) and the average length of time people spend on your site to see how unforgiving they can be.
Now don’t get bent out of shape about this just yet. Because I’ve got something that’ll instantly make it easier for you to hold on to your readers’ attention. It’s called the "Bucket Brigade."
You’ve been looking at it all through this article.
Phrases like: "But it gets worse," "You see," "Think about it," "The truth is," "However" – that’s the "Bucket Brigade." These words keep the reader moving forward, creating constant momentum. When done right, they make your sales copy seem more conversational. Even better, they turn it into a greased slide, making it almost impossible to stop reading until the end.
John Carlton said one of the easiest ways to come up with Bucket Brigade phrases is to "use the old journalism trick of ‘who, what, where, when, why, and how.’ For example: ‘Who else uses this secret?’ ‘What does this mean for you?’ ‘Why would I share such a valuable tactic with a stranger?’ ‘Where did I find this information?’ ‘How would you like to see it for yourself?’"
[Ed. Note: Rich Schefren, president of Strategic Profits, is a business strategist and the coach to dozens of today's top Internet gurus. Get Rich's free "swipe file" of 472 Bucket Brigade words and phrases by clicking here.
Rich has also put together a free report that reveals how you can pull ahead of your competitors and position your Internet business for market domination. Click here now to get his specific strategies.]
Make Any Business Presentation More Powerful With Two Steps
By Peter "The Humorator" Fogel
Any presentation you give, you give for a reason. If you’re a CEO, for example, you may want to speak to your staff about where your company is headed in the coming year. But if you end up boring them, there’s little chance that you’ll get your message across.
Here are two fail-safe ways to keep your audience awake and alert:
1. Keep it short and simple.
Don’t try to wow your audience with your oratory skill. Pack your presentation full of interesting stories that illustrate your points, but stay away from unnecessarily big words. Keep your sentences short. And talk to your listeners as you would talk to a buddy over coffee. If your audience is a bunch of computer techs and you’re talking about your new software, feel free to use technical terms. But stay away from jargon and terminology that your audience might not understand.
Remember: You’re there to express, not to impress.
2. Above all else, be positive.
You may be in a bad mood on the day of your presentation. You may be recovering from a cold. You might even be nervous about speaking. But letting negative feelings creep into your speech is a surefire way to bore your audience or make them uncomfortable.
No matter what mood you’re in, deliver your message with a positive attitude. Fake it, if you have to. Smile, even if you’d rather punch someone. Keep your voice upbeat. Make eye contact. Those are the signs of a real pro!
[Ed. Note: Peter "The Humorator" Fogel is a copywriter, speaker, author, and creator of Peter "The Humorator" Fogel's Guide to Effective Public Speaking. For more information on it or on his FREE 7 Days to Effective Public Speaking E-course, click here.]
Lose Weight Starting With Breakfast
When it comes to losing weight, no meal is more important than breakfast. And new research shows that you’ll have better results if you bag the bread and opt for eggs.
For a recent study published in the Journal of the American College of Nutrition, researchers separated participants into two groups. One group ate eggs for breakfast. The other group had a bagel with the same number of calories.
They found that the egg breakfast helped participants feel fuller over 24 hours than the bagel-based breakfast. What’s more, those enjoying the egg breakfast ate about 330 calories less during the remainder of the day. Over the course of a month, this one simple change could help you lose almost four pounds.
Take a few minutes in the morning to scramble an egg. Or hard-boil several and refrigerate for a quick, portable protein breakfast. If you’re daring (like me), enjoy your eggs raw and fresh – whirled right into an organic, berry-packed smoothie. And don’t forget the yolk. That’s where half of the protein and all of the sight-saving lutein and zeaxanthin is.
[Ed. Note: Kelley Herring is the founder and CEO of Healing Gourmet and the author of the new e-book, Guilt-Free Desserts: 20 All-Natural, Fail-Proof, Low-Glycemic Desserts Just in Time for the Holidays. Learn more about how simple lifestyle choices can improve your health by reading ETR's free natural health e-letter.]
It’s Good to Know: Electric Sockets Around the World
As even the occasional overseas traveler knows, electric outlets are different in other countries. In fact, there are 13 standard electrical plugs, as well as varying voltages. So when you’re preparing for a business trip or vacation in a foreign country, plan ahead and bring the proper adaptor. (You can get them at Radio Shack for about $15.) If you don’t, you won’t be able to do things like charge up your laptop or use your hair dryer.
For a listing of electrical standards by country and for more information on using adaptors and electrical appliances safely while overseas, check out these websites:
- traveloasis.com/world-electric-guide.html
- kropla.com/electric.htm
- escapeartist.com/global/World_Electric_Power_Guide.html
(Source: National Geographic)
Start Making Money Today
Interested in getting a nice little side-business going on the Internet? Or maybe even from your living-room table?
But you don’t have too much money, you don’t have too much time, and you’re not exactly Bill Gates when it comes to technology. Sound familiar?
A lot of people are in the same boat. The good news is that ETR has heard you. And now we’ve done something about it…
We’ve asked our colleague Marc Charles to be on the lookout for profit opportunities that can be run from a kitchen table, your desktop or out on the road.
Criteria? They’ve got to be inexpensive, easy to start, and still have great income potential, but without a lot of red tape.
They say when you’re first getting your feet wet with a side-business, the most important dollar to make is the first one. Well, Marc is an expert at taking beginning entrepreneurs and showing you how to make that first buck. He knows, because he’s done it dozens of times for himself, his family and his friends.
If you’ve been dreaming about starting your own business… now you can get started for about the price of 2 lattes.
And get this – you could be making money literally just hours from now. Imagine the feeling of finally getting a side business launched – TODAY!
- Patrick Coffey
Word to the Wise: Agglomeration
An "agglomeration" (uh-GLOM-uh-ray-shun) is a jumbled cluster of varied parts.
Example (as I used it today): "The stock market is not just an agglomeration of financial spreadsheets, of profits and losses. It is a global, computerized casino where huge institutions respond instantly and automatically to hundreds (even thousands) of different matrices."
[Ed. Note: Become a more persuasive writer and speaker ... build your self-confidence and intellect ... increase your attractiveness to others ... just by spending 10 VERY enjoyable minutes a day with ETR's new Words to the Wise CD Library.]
Michael Masterson
Copyright ETR, LLC, 2007
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