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Long a buy and hold investor, I now believe that buy and hold has to be re-evaluated in a world of ever increasing, instant information and huge gyrations in markets all over the world. A value investor at heart, I anchor my portfolio with conservative funds and blue chip dividend stocks, but... More
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  • Create wealth or preserve wealth - Why Chose?

    What should I do with my nest egg? Where should I invest?  How should I invest? Gold, Silver, Stocks, Bonds, Funds?  Can you help me decide please?

    These are some of the questions investors have when they seek financial help. Fund managers and bankers know these questions will be asked. They know, because they are quite familiar with the driving force behind those questions.

     Bankers, fund managers and money managers often break down clients into two categories. Those who want to create wealth and those who want to preserve wealth. Now, ask yourself this simple question: Are you in either camp?  If so I am sure you have your reasons. Some of you believe your portfolio, which may be fairly substantial or even just adaquate, should be protected and preserved for your retirement years. That, my friends, seems to make good common sense, Does it not?

    Some of you, on the other hand, feel your portfolio needs to grow substantially more, so as to allow you a comfortable retirement.  That also seems to make good common sense.  However, these two trains of thought can be boiled down to one driving force, Fear!  Fear that you will reach retirement with no appreciable nest egg to count on (the preservation of capital camp) and fear that you will reach retirement, with no appreciable next egg to count on (the create wealth camp). You see, there really is no difference in the driving force, and many fund managers know this very well. They are very adept at pushing the buttons of fear in investors. After all, fear is what made our ancestors choose between "flight or fight" when confronted by a hungry preditor. Fear is a powerful tool, and money managers are very adept at using it to drive you into  decisions you might not otherwise want to make. If you fear losing your nest egg and keep your money in cash, then how do you balance that with the fear of hyper inflation that some people believe is coming. Indeed, fear is a powerful motivator, and a destabling influence.

    Money managers will generally place a young person in the "create wealth" camp while placing a 60 year old in the "preservation of wealth" camp.  The reasons for this are generally well known ie: the 20 year old has a lot of time to make up for losses while the 60 year old doesn't. This train of thought has been developed over the past 50 years or so. So why do I take issue with it.  at 59, which camp should I be in? The latter you say!

    In today's environment, there are 20 somethings with a lot more money than the 60 year olds. The technology of the internet has seen to that, along with government policies that continually hammer prudent savers while rewarding speculation. Just ask the millions who, having placed their nest eggs firmly in the hands of mutual fund managers, have gained exactly nothing over the past 12 years. Many have lost wealth, thniking their store of wealth was their home.

     I am firmly in both camps and I believe you should be too. In an embryonic state, an egg can split into two, three, four or even five different entities. Twins, triplets and quads often grow up to be strong individual entities. In other words you should consider that your "nest egg" is actually twins, triplets or quads.

     

    Maybe the first two need to be nurtured, continuously, so they can grow and grow into powerful entities in their own right, capable of taking on the world someday, by themselves.  You may have one or two eggs that are already fully developed and you need only provide careful and consistant direction to ensure these fully developed entities stay on the right path to sustain their strength, and maybe even grow a little more.

     Investments, like life, are constantly in flux, in an ever changing environment of risks and rewards. If you take no risk, you reap no reward.  If you take too much risk, you stand to lose much if not all.  So why, as an investor, would you solidly place yourself in either camp?  I don't!  I never will! There are no guarantees in life, and really, there are no guarantees in investing. On any journey in life, you sometimes take the right road, and sometimes you veer off into the wrong path. Recognizing the difference, and getting back on the right path, is critical. Surely, if you stay on the wrong path too long, you won't arrive at your destination on time.

    Investing is a liquid, ever changing landscape, with scattered road bumps and pot holes. You have to be in the drivers seat to see where you are going, you have to be fully fueled (with good information)  and you have to know your route.  If you give someone else the wheel and the route, and sit in the back seat and fall asleep, you could end up in catastrophe. Don't give up the drivers seat to a fund manager, a banker, a stock broker or anyone else. You're in charge.  Don't let go of the wheel.

    Placing yourself solidly in the "preservation of capital" camp only or in the "creating wealth" camp only, is akin to taking that wrong path, in my humble opinion. Yes, you have to preserve capital and Warren Buffetts lesson of "don't lose the money" is a good case in point. So how do you "don't lose the money" in this environment? Gold, Silver, Lithium, Uranium, Bank stocks, growth stocks, dividend stocks, company bonds, muni bonds, federal reserve notes, real estate, cash?  Certainly, in this pre inflationary environment, cash is not the answer, but can you be guaaranteed that any of the others will, for sure, preserve your capital?  I can't give you that guarantee, and no one else can either. If you are getting all of your advice from the talking heads on CNBC just remember, even a broken clock is right twice per day!

    If you  leave your nest eggs invested in mutual funds, and walk away, then remember this! Fully 60% of "all" fund managers "do not" beat the index of the market they are invested in. Many are "closet indexers". In other words, they say they are active managers but invest your money by simply matching the index (buying the companies that make up the Index in the exact proportion as they are weighted to the Index). Usually they collect anywhere from 2%-3% of your portfolio, every year, for this so-called management. Why would you keep shoveling your hard earned money into this bloated, gluttonous industry? There is no other industry out there that is so grossly overpaid for providing so little.

     In 2008, Three distinguished professors of finance studied the returns of 2076 actively managed mutual funds over 21 years ending in 2006. Their conclusion: By applying a sensitive statistical test to separate luck from skill, the study found that 99.4% of the fund managers had no genuine stock picking ability.their paper was titled: False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas

    In other words, with today's information avalanche and trading software, "you" can pick stocks and do as well as many so called money managers. So how does this affect an average investor, and what investment vehicles can you use to avoid the pitfall of paying fees for under performance?

    Exchange traded funds or ETFs are one of the few fund vehicles I would favour these days. Take commodities for example. Average investors in the past, would have to walk through the minefield of owning a futures account and the possibility of taking delivery of the physical commodity.  Today's ETFs allow that same investor to invest in commodities such as gold (gld), silver (NYSEARCA:SIL) or lithium (NYSEARCA:LIT) or maybe in Eastern European stocks (NYSEARCA:ESR) or even long Government bonds (NYSEARCA:EDV).  I am not advocating these particular ETFs, but only poiinting out how they have become another avenue that may benefit average investors as they seek ways to strengthen and deiversify their portfolios.

    Managed mutual funds have much higher fees than ETFs with an average MER of 2.5%.  ETFs have fees that are only a fraction of those charged by fund managers. This difference in fees can erode your capital over time, and in many cases, has ensured investors have made no gains from as far back as 2000, in their managed funds.

    My own preference is for individual stocks (NYSE:SLW), however, ETFs provide a way for retail investors to play sectors of the market they are most interested in, without the high fees of managed mutual funds.. The good new is that you can change your bet at any time, depending on the information and market intelligence you have gathered. The bad news is, that you can change your bet at any time, depending on the information and market intelligence you have gathered.  I hope you get the point. You can benefit from the structure of ETFs, however, stay in the drivers seat, and do not give up the wheel to anyone else

    You owe it to yourself and to your Retirefund.

    HP

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SLW over the next 72 hours.
    Tags: GLD, SIL, LIT, ESR, EDV, SLW
    Feb 28 2:05 PM | Link | 1 Comment
  • Libya is not the Catalyst in the Middle East you should be concerned with.

    As Libya trumps the news broadcasts from CNN to Fox, there is another country that is more vital to U.S. interests. It is strategic for a number of reasons, not the least of which, is the potential for a shift in the balance of power itself in the middle east.

     

    Bahrain is a buffer between Iranian and Saudi power in the middle east. It's future may affect a U.S. withdrawal from Iraq. The United States 5th Fleet has a base in Bahrain. The withdrawal from Iraq, and U.S influence could well be affected by whoever reigns over Bahrain in the immediate future. Saudi Arabia has a large Shiite minority that could begin protests in that country. Depending on how politics play out in Bahrain, the Iranian-Saudi balance in the region would favour Iran.  Iran, who supported the Shite minority in Iraq, and still does, will not stop at that border. Their support of a Shite protest, or uprising in Saudi Arabia could well be the straw that breaks the camels back, so to speak.

     As oil spikes on the Nymex over $101 PBL today, and Brent Crude reaches $111 PBL at this writing, we may be in only the first inning of this perilous game which plays out in this hotbed region every decade or so. However, depending on certain outcomes, this could be the truly big game that changes the dynamic, maybe forever.  Now I know that this sounds appocolyptic, but the appocolypse is not what I am referring to.  It is the world energy supply, and the rapid changes that are occuring in the minds of many producers and investors alike.  

     As an investor in both oil and alternative energy sources I believe that these events are the tipping point toward these investments. The world can no longer leave its energy supply so affected by the whims of autrocratic and barbaric Kings, Princes, dictators and cracdkpots like Khadafi in Libya, or Amadinijad of Iran. It may well be that the long suffering people of the Middle East may one day enjoy freedom and democracy, but in the meantime, the world needs to protect its economies from such calamity.

     These troubles in the middle east are the catalyst that will drive investors to natural gas investments in the USA as well as investments in Wind, Solar, Nuclear, fuel cells, electric vehicles and Lithium.

    Consider this a buying opportunity for those stocks.

    Herès to your Retirefund.

    HP

     



    Disclosure: I am long OTC:TLTHF, OTCPK:RDNAF, SU, CVE.
    Tags: LIT, TLTHF, SUNS, ESLRQ, SU, CVE, BP, RDNAF, WLCDF
    Feb 23 2:03 PM | Link | Comment!
  • Lithium market poised to grow up in 2011.
    Lithium investors will prosper in 2011 as EV market heats up!
     
    Lithium is one of the most dynamic, useful, and least understood metals. "Metal" as most people know the word, may be a bit of a misconception to investors as this metal, the lightest in the periodic table, can literally be cut with a knife!

    Thousands of labs all over the world are working with and studying the properties of lithium at this writing, and the discoveries are lifting this element into a category all its own.  On Jan 11th the folks at Argone National Labratory released parts of their study into this wonderous element, and their findings will most likely increase the value of lithium for a number of uses, not the least of which is in the electric vehicle market. See: Lithium surprises!

    Here is a brief description of lithium, from Webelements.com 

    "lithium is a Group 1 (IA) element containing just a single valence electron (1s22s1). Group 1 elements are called "alkali metals". Lithium is a solid only about half as dense as water and lithium metal is the least dense metal. A freshly cut chunk of lithium is silvery, but tarnishes in a minute or so in air to give a grey surface. Its chemistry is dominated by its tendency to lose an electron to form Li+. It is the first element within the second period. Lithium is mixed (alloyed) with aluminium and magnesium for light-weight alloys, and is also used in batteries, some greases, some glasses, and in medicine.
    Table: basic information about and classifications of lithium.
    "
     
    While lithium is being used in medicine, greases, glass making etc, it is the electric vehicles market for batteries that makes lithium the subject of this report. Lithium carbonate sells between $5400 and $6500 per ton and is mined in China, Australia, Canada, the U.S. and South America.  Chile now produces the majority of lithium carbonate on the market today, over 60%.
     
    Companies such as SQM of Chile (the largest producer in the world) produce lithium as a by product of their large deposits of Potash. 
     
    SQM along with Chematall, FMC and Talison Lithium of Australia, form what should be considered the BIG FOUR of the current lithium mining industry.  Outside of their current production, only 15% is spread among more minor players.
     
    However, because of the the ramping up of major auto companies into the EV market, and because of their preference for batteries constructed of some form of lithium derivative (Lithium ion or Li-ion, Lithium air etc)
    there are a number of junior miners who have jumped into the fray over the past two years, and some of those may well be poised to become much larger players, as consolidation in this new born industry continues into 2011.  In essence, consolidation will encompass those who have staked the most promising claims, especially in the premium lithium brine region of Chile, and Argentina which share the Atacama desert on the Puna plateau, which is the driest place on earth.
     
    LIthium brine deposits will be, in no uncertain terms, the least expensive way to mine lithium.  Mother nature will do most of the work as the brine is pumped to the surface of dry salt lakes, and the natural drying exposes the lithium, to be merely scooped up and brought to processing, to be turned into lithium carbonate.
     
    Investors should note that, hard rock lithium miners (lithium mined from spodumen) will be at a disatvantage as mining from such sources is much more expensive.  Having said that, Auto companies will be needing an uninterrupted supply in the coming years, and hard rock miners will have an upper hand in this aspect (only) as their production can be uninterrupted by a drying process worked by mother nature, as is the case of brine deposits.  In other words, if the miner is interrupted by weather (a slower drying time for instance) and cannot deliver a consistant supply, then the auto manufacturer would be put in the impossible position of having to shut down production while awaiting sypply. 
     
    Three of the BIG FOUR suppliers have already indicated an unwillingless to sign agreements with the auto companies, basically telling them to buy on the spot market (there is currently no futures market for lithium)
    That, of course, is unacceptable to a manufacturer who depends on a steady stream of product to keep the plants running.
     
    This is the reason why some auto cos, such as Toyota, and parts manufacturers such as Magna International,  as well as battery manufacturers, have invested in some of the most promising juniors over the past two years.
    They will need an uninterupted supply of lithium in the future.

    The Obama Administration in the United States is a huge backer of this new Lithium Economy. For more on the governments role visit Argone National Labratory. 
     
    My top pick in this booming sector is Talison Lithium (TLH) of Western Australia.  Talison is a very unique hard rock miner, having produced lithium from spodumen at its Greenbushes plants for the past 25 years.  It currently has over 300 customers, and is the largest outside supplier to the booming market in mainland China, because of its proximity to this, the largest market in the world.
     
    Talison is the largest PURE lithium producer, as it is not in any other business.  Last August, it swallowed up a promising junior, Salares Lithium Ltd, and its giant Salares 7 project of 7 salt lakes in Chile, thereby making it unique in the industry with both hard rock and brine properties. Their foresight in this regard, is way ahead of competitors in my humble opinion.
    Talison is ramping up production in Australia by 100% this year to meet an ever increasing demand. Talisons uniqueness doesnt stop there.  Dr. Jon Hykaway of Byron Capital Markets (If you are a lithium investor, this man should be on your reading list immediately) points out, in his own words, that Talison is a "Mutant in the hard rock mining space" as its deposits are so rich in lithium, they are unmatched anywhere else on the planet and they have at least 40 years left in their massive deposit at Greenbushes. Talison is also currently flying under the radar of U.S. investors as it is listed on the Canadian Venture Exchange (as a result of swallowing Salares) It was, up until Sept 2010, a private company.
    My second pick in this booming sector is a junior which reminds me somewhat of Salares Lithium, before it was swallowed by Talison. Rodinia Lithium (RM.v) has similiar deposits in South America as Salares had, and three of these deposits are listed very high on analysts estimates of quality of deposit.They also have a very promising deposit in Clayton Valley, Nevada, which may provide an unlimited supply of lithium from clay deposits. This is in the same area as Western Lithiums (WLC.V) deposits which I also like.
     
    Engineers are currently developing promising (but as yet untested) ways to mine the lithium from the clay.
     
    There are certainly other players in this market, and for a comprehensive list, you should visit the lithium index at Byron Capital Markets. 
     
    Disclosure: long TLH.v, RM.v, TNR.v,
    HP

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