Global Mining Investing $69.95, 2 Volume e-Book Set. Buy here.
Author, Andrew Sheldon

Global Mining Investing is a reference eBook to teach investors how to think and act as investors with a underlying theme of managing risk. The book touches on a huge amount of content which heavily relies on knowledge that can only be obtained through experience...The text was engaging, as I knew the valuable outcome was to be a better thinker and investor.

While some books (such as Coulson’s An Insider’s Guide to the Mining Sector) focus on one particular commodity this book (Global Mining Investing) attempts (and does well) to cover all types of mining and commodities.

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Monday, January 26, 2009

Has the Dow Jones bottomed?

If you have already started buying back into the Dow - its not bad timing. Judging by the banking stocks in Australia and the Dow index, the market has yet to reach its trend line lows. The facts however suggest its probably unlikely to do so.
The chart to the right is particularly interesting because it shows the log-linear trend for the Dow over its entire life (1897 to 2009). Rarely do we get a history of 112 years.
This chart is interesting because there should in theory be a relationship between price increases and the money supply, or the nominal value of money and the size or real value of the economy. We can take the Dow Jones as a measure of this because prices between stocks should find a comparative value equilibrium based on yield.
We can see from the chart that the Dow in 1929 was far more overvalued than it is today; but that the Dow today was more seriously overvalued in 2007 than the 1965. More recent consolidation and sell-offs have brought the Dow back to support, which should provide a basis for market support, but the market could not be considered good value.
The question we have to ask is - Was the collapse of asset values in 1929 the result of poor Fed and government policy, or was it because of the extent of the exuberance. In as much as the 2000s was almost as exuberant as the 1920s, we might conclude that we are going to fall back to the base line trend (index level of 3.5). The alternative is the prospect of the markets going sideways for 20 years with brief, unsustainable rallies. That strikes me as a long time, but that's exactly what the market did back in the 1970s (1965-1985). There were gains in nominal terms, but after adjusting for inflation, the market effectively went sideways for a long time.
The implication is not that investors should sit on cash for the next 20 years, as it will be eroded by inflation. The challenge ahead is to pick the bottoms and tops as the market passes through a period of protracted consolidation. These will be significant rallies of at least 30% I would suggest.
Most people will not be aware, but we have actually be in a consolidating market trend for a decade already. We can expect to break-out of this consolidation trend in around 2022, so that's in about 13 years. That is too long to invest for the long term. The 'buy & hold' strategy will not make you money over this period. You need to learn to become a trader. You will need to check your stocks at least weekly, and better still daily because the corrections will be rapid. More rapid than they were in the past because the market is better informed. This is not the first time, and some people will know it.
Andrew Sheldon

Monday, January 05, 2009

Market outlook by Marc Faber (critique)

Marc Faber has been a long time cynic of US monetary policy, and sits in the 'gloom' camp a long with myself, though in that regard he might be considered more gloomy than me, but only slightly. We do however differ on market trends, particularly in the short term. A friend sent me a link to one of his Bloomberg interviews, to which I would make the following comments.

I won't be too critical of him because when I listen to what he says, some of his points can be misinterpreted. I can see that because he clarifies his position later. He is open to the prospect of the market going lower. I don't see that. Fear grips the early phase of the market. Are things going to get worse? Certainly. There will be higher unemployment, a slowing of output, but I would argue we are going to see a rise in inflation, and not so much a fall in asset prices. Why? Because the 'fear phase' is over and yields are compellingly good. We are now experiencing a recovery, which will quickly be exhausted in the wake of bad news from the real economy. We will then have erosion of yields by higher prices. So I don't agree that 'we are a long way from the bottom', but rather than we will avoid a significant fall as a result of fiscal stimulus, and that stimulus will end up keeping us in recession longer than we would otherwise have to be.
The lesson investors need to learn is to trade stocks from lows, and when to sell. They need an education in technical analysis. He suggests that the 'best thing for the government to do is nothing'. I disagree with that, though I agree that the government should have avoided this by prudent debt management. He actually suggested he was very negative on the commodity countries like Australia and NZ, so I'm inclined to think he does not appreciate the merits of these countries. Assets in these markets have been severely sold down, and offer very good buying at a time when the currency is so low. Commodity exporters are generating good revenues based on prices denominated in USD. That is a wonderful paradigm in a consolidating market.
I disagree with his point that the US will fare better than emerging markets. He argues that the US does not produce anything, so it will not be hurt so much, but the reality is that the US produces a lot of high value, discretionary product, and anyway, it has investments abroad in similar 'lower value' capacity. True, the Middle East will be worse off because their currencies are pegged to the USD. But Australia and NZ will be better off because they are not pegged. Aside from the protection provided by their weaker currencies, Australia particularly has low levels of government debt compared to the USA. Contrary to Marc Faber, I see Australia and NZ faring far better, particularly Australia. He did not mention Japan, but one could argue that Japan is well-positioned to recover from any global recession because its been subdued by no credit bubble for the last 19 years. It does need to engage in reform, and its still hard to see that happening. But these are otherwise painless markets to invest in. South Africa will also fare better.
Andrew Sheldon

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The Philippines property market remains one of the strongest in Asia thanks to rising incomes, rising population and rapid rates of urbanisation. The administrative reforms of the Arroyo government have given way to improved administration under Aquino. ASEAN countries can be expected to achieve even greater price gains than Western markets, demonstrating that this super cycle is far from over.

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Investment Strategy

If you are investing for the long term, you still need an investment strategy. Dont be fooled by the rhetoric of fund managers. The reason they advise you to 'buy & hold' is because they dont want to compete with you in sell-offs. Markets and industrial sectors are cyclical, so they demand trading to get the best returns. Fund managers actually cant hope to match the performance of small investors (if you are half good) because they have to manage huge amounts of funds and charge you a fee besides.
MY ADVICE is (i) look at a range of market indices and decide upon what level of correction would give you the justification you need to get in & out of the market. It might be a 5-10% retracement or a break of trend. (ii) Diversify if you dont have an intimate knowledge of the company or management. More than 30% in one company is aggressive.

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The NZ property market is shaping up as one of the most attractive property investment markets for the next few years. High yielding property and the collapse of the NZD make NZ the perfect counter-cyclical investment if you buy right! In addition, there is no capital gains tax, transfer taxes, VAT/GST or wealth taxes in NZ, so rest assured that NZ property is tax-effective! Learn more now!

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