The “Are You Crazy?” Rule of Investing

Investment Ideas

The Governor and Company of The Bank of Ireland (IRE)

National Bank of Greece SA (NBG)

iShares MSCI Japan Index (EWJ)

ProShares UltraShort FTSE China 25 (FXP)

Market Vectors Russia ETF (RSX)

“Are you crazy…?”

That was the reaction I got from a prominent London investor at a recent holiday fundraiser when, oiled by a few too many cocktails, I made the mistake of revealing that I was yet again spending my Christmas holidays in Florida looking at real estate investments.

His reaction was understandable. After all, “everyone” knows that Florida — and the United States as a whole — is going to hell in a handbasket. And if you think the real estate market in the United States is bad now, he told me, wait until mortgage rates rise 300 basis points, U.S. mortgages lose their tax deductibility to finance Obamacare and 80 million baby boomers downsize their houses simultaneously. All this, he told me triumphantly, is a recipe for a collapse in U.S. housing for the next generation.

Frankly, I’d heard it all before. And his reaction merely reinforced my decision to tackle the maze of bureaucracy to try to buy some properties out of foreclosure in the Sunshine State.

Are You Crazy?

“Are you crazy?” is the same reaction I heard about investing in Russia after its collapse in 1998. Everyone from Warren Buffett, George Soros and Jim Rogers concurred with one investor’s sentiment that “I would rather eat nuclear waste than invest in Russia.”

Yet, Russia — the bad boy among the BRICs — has outperformed media darlings Brazil and China by a country mile over the past decade or so. In fact, Warren Buffett would be a richer man today had he piled into the “world’s biggest kleptocracy” — as his partner Charlie Munger called Russia — in the midst of Russia’s financial crisis in 1998. The Russian stock market’s 25%-plus annual return since its collapse has far outperformed Berkshire Hathaway over the past 12 years.

Yet, when I speak to my subscribers at Global Stock Investor, many simply ignore any recommendations related to Russia. Some of my investors at my firm Global Guru Capital don’t allow me to invest in any stocks in the country.

This has led me to formulate the “Are you crazy?” Rule of Investing.

Here’s what it says:
“The more people think you are crazy for investing in something, the more money you are likely to make.”

When you describe an investment to your friends, the best reaction should not be:

“What a great idea! How can I get in on this?”

It should be:

“Are you crazy?”

Let’s face it. It’s fun and easy to invest in a “good story stock.”

That’s what makes technology or biotech so exciting.

It’s exciting to be involved with a company developing a cure for cancer or some new technology — and one that could make you 10 or even 100 times your money.

These are the success stories that make it into business magazines — or in the case of Facebook, onto the big screen in movies like “The Social Network.”

But the reality is that when you invest in almost any of these companies, you are simply buying an expensive lottery ticket, with slightly better odds.

Venture capitalists know this — and are counting on the one “Google” to make up for the dozens and dozens of “Pets.coms.”

Today’s stock market also has its share of speculative-story stocks — “no brainers” that seem to be the key to untold riches.

Facebook offers a perfect example.

On Sunday, Goldman Sachs announced that it had invested $450 million in Facebook — valuing the social-networking company at $50 billion, making it worth more than eBay Inc. (EBAY), Yahoo! Inc. (YHOO) and Time Warner Inc. (TWX).

Yet investors are clamoring to get into Facebook as its shares have been trading privately for years. In fact, Goldman is likely acquiring stock to make it available to the company’s best clients.

Facebook may turn out to be a profitable investment. Yet, at a $50-billion valuation, you have to wonder what kind of upside there is in the stock.

One thing is for sure. It’s unlikely that if you get your hands on some pre-IPO Facebook stock, you’re going to get the “Are you crazy?” reaction I got for considering investing in Florida real estate.

That tells me that there are better places to put your money.

My list of “Are You Crazy?” Investments

So what are some “Are you Crazy?” investments today — ones that your friends would look at you funny for even thinking about?

1. The Governor and Company of The Bank of Ireland (IRE)
National Bank of Greece SA (NBG)

The worst of Europe’s PIGS won’t disappear off of the map and will be bailed out — much like Citibank (C) and Bank of America (BAC) in the United States. Stock selection is a key, though. Bet wrong — like some investors recently did on the now-nationalized Allied Irish Bank (AIB) — and you’re on your way to the poorhouse.

2. iShares MSCI Japan Index (EWJ)

With a stable society, advanced technology and world-class companies, Japan, the “China” of its day, finally may have turned the corner after a 20-year bear market.

3. ProShares UltraShort FTSE China 25 (FXP)

China has had a great run. But let’s keep it in perspective. Among China’s 1.3-billion citizens, only 60 million of them earn a $20,000 middle-class annual income, while 440 million make $3-$6/day and 600 million take in less than $3/day. China’s cocktail of malinvestment, a coming real estate collapse and “crony Communism” will end up costing investors a lot of money.

4. Market Vectors Russia ETF (RSX)

As the cheapest major stock market in the world trading in single-digit P/Es, and a “Wild East” mentality notwithstanding, you’ll double your money in this market quicker than in any of the other BRIC economies.

5. U.S. Real Estate

With gross yields on properties routinely at 12%-plus, and most rentals generating positive cash flows from Day One, the U.S. real estate market is one of the best places on the planet to park your money.

So what about that London investor who called me crazy for investing in Florida real estate?

Well, he just put in offers on a handful of Miami condos, and even is looking at acquiring a small building in Miami Beach.

I may be “crazy.”

But at least I’m no longer alone…

 

 

 

 

 

 

 

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