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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Friday, October 10, 2014

The Dow Jones has confirmed a short term correction - looking for more

On the 10th Sept 2014 I warned of a sell-off in stocks, only to withdraw that warning on the 18th Sept 2014, when the market went to new highs. As it turns out, it was a false signal, insofar as the market went back into reversal, and we now have a solid short-term downtrend, that seems likely to take us far lower. Markets down always have a 'pretty pattern' as we see in the first chart below. They under and over-shoot on occasion.
The reason for this market correction is simply the high level of asset prices. Asset prices are simply too high because rents are taking too much of people's incomes, or interest payments too much of their incomes, and that is despite record low interest rates. People are forced to live 'expensive lives' in the city in order to 'have a job in the city'. The problem is most wealth is created and vested in the cities. The problem is that these centres of growth become over-capitalised when governments are able to restrict land development. They do this in order to keep local taxes high, and because landlords like the 'wealth effect' of rising property prices.
In this first chart we can see the solid downtrend that has emerged in the last two weeks. We can see that the Dow, which closed at 16,660 overnight, closed off its low for the day. I actually think its going to break that in a big way....perhaps overnight, but it might really. But when it does break 16,660pts in the next day or two, it will be convincingly.
We can see that a short-term support is 16,500pts, however looking at the lowest chart, its possible we will be looking in a fall in the market to 14,000pts. That is a correction of 19%, or 13.67% from the start of 2014 (at 16220pts).

There is no compelling reason why the market should fall that much; not because the market is overpriced, but simply because there is nothing pulling it down. Interest rates are not rising. That augers well for the present. So I don't necessarily see this downside reaching 14,000pts because I'm going to wait for the market to tell me. The trick is to wait for the market's lack of confidence to be shaken out. It is fair to say that the central banks will look favorably upon a fall in asset prices - not just equities, but also housing. Housing markets are also softer in recent times. So let's see how much confidence is undermined. I frankly think these are good times. The problem is people are incredibly myopic. They tend to think markets evolve around their 'Western experience' and fail to see how Western market weakness (i.e. unemployment) is a boon to markets elsewhere. The money is flowing to the farthest corners of the world. It will collapse eventually, but we are a long way off that yet. The question is - how much of a fall is necessary to restore confidence in the short term. Rest assured that this fall is not going to spook consumers in emerging markets who don't own stocks, and who don't have so much wealth invested in their houses. They aren't going to be concerned because you might not be buying a new car, but you still need the underwear you make, and the people in their country are increasingly buying new 'branded' underwear, motor scooters and I-phones to impress their girl friends. Some of them are better off still doing your computer programming.

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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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