Could this be the week when the Aussie dollar slumps below 90 U.S. cents? All the signs are there… — A recovering U.S. economy, with Friday’s strong job figures emphasising the point. — Interest-rate wise, the RBA has maintained and reiterated its easing bias. The market is predicting a 45% chance of a further interest rate cut in August. Look out below, term deposits. — Currency forecasters are lining up to predict a sharply lower Aussie dollar, with Credit Suisse last week cutting its 12-month forecast to a rock-bottom 75 U.S. cents. There’s always one… one like Credit Suisse that takes a…
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Could this be the week when the Aussie dollar slumps below 90 U.S. cents?
All the signs are there…
— A recovering U.S. economy, with Friday’s strong job figures emphasising the point.
— Interest-rate wise, the RBA has maintained and reiterated its easing bias. The market is predicting a 45% chance of a further interest rate cut in August. Look out below, term deposits.
— Currency forecasters are lining up to predict a sharply lower Aussie dollar, with Credit Suisse last week cutting its 12-month forecast to a rock-bottom 75 U.S. cents.
There’s always one… one like Credit Suisse that takes a punt their outlier prediction will come to pass, ensuring rock-star status should they be right.
How to win when you lose
Should they be wrong, no-one will remember the prediction anyway… a case of heads I win, tails I don’t lose.
It sums up many in the financial services industry — living off the gravy train of commissions and a steady, mandated stream of superannuation money coming in every day of the year.
What does the average punter get in return?
Mediocrity and underperformance.
The title of the classic investment book sums up the industry — Where Are The Customers’ Yachts? It’s a brilliant (and hilarious) assessment of Wall Street’s ability to take care of themselves at the expense of their customers.
That said, there are a number of brilliant stock pickers and financial advisors out there who are worth their weight in gold.
One such stock picker is Karl Siegling, the founding director of Cadence Asset Management.
As profiled in The Australian Financial Review, its main investment vehicle is Cadence Capital (ASX: CDM), an ASX-listed fund that has delivered about 14% in annualised returns over the past five years.
In previous Motley Fool Take Stock columns we’ve commented that in the investing world, you’re doing well if six out of ten (60%) of your stock picks are profitable.
Siegling says 45% of his calls are wrong — the losses hopefully being small — the big returns coming from the 55% of calls that are winners.
The most important rule of investing
“The most important rule of investing is let your profits run, and cut your losses,” Siegling says in the AFR. “You can’t have a 10-bagger if you sell the stock when it doubles.”
It’s music to our Foolish ears.
Yet we hear from far too many people who do that exact opposite — take profits on their winners, mistakenly following the “you never go broke taking a profit” mantra — and hold on to their losers “just until they get back to what I paid for them.”
It’s a recipe for underperformance.
Losses are an acceptable risk of investing.
Heck, I’ve had my fair share. My Lynas (ASX: LYC) shares are down 60%. Luckily for me, they started out as a small position, as befitted their risk profile. Now they’re an even smaller position. Oops…
You can completely forget about finding the next Sirius Resources…
The trick is, as Karl Siegling says, is to limit your losses.
And, as boring as it may seem, that means saying no to punting on some tiny penny share mining stock in the hope it will turn into the next Sirius Resources (ASX: SIR).
Speaking of Sirius, the rags to riches nickel explorer, a story in the AFR highlights just how lucky the company was just to survive…
“A year ago the share price had fallen to 5.7 cents and Sirius was down to its last half a million uncommitted dollars. They decided to spend the cash on a last gamble by drilling a Creasy prospect called Nova, in the Fraser Range of south-eastern WA.”
The rest is history. The last gamble hit nickel, and copper, in what looks to be a very large orebody. Last year Sirius shares soared as high as $5, a near 8800% gain.
It’s the stuff of legend. But like winning the lottery or picking the Melbourne Cup trifecta, it’s the stuff of dreams.
Investing at Sirius’ low point, in advance of the last roll of the dice, the odds of failure, and a 100% loss of your money, were enormous. Any sensible, Foolish investor, would simply walk away from such odds, no matter what the potential return.
The 3 most dangerous words in investing
Rather than punting on what will almost certainly NOT be the next Sirius Resources, it’s never too late to invest in a high quality company.
U.S. hedge fund manager Whitney Tilson has a 3-word phrase that’s done damage to investors this year, and likely most other years, especially in bull market…
“I missed it.”
Tilson goes on to say…
“Wipe your mind clean, don’t look at the stock chart; just ask only one question: ‘I have the opportunity to buy this stock today at this price, is that a highly attractive price relative to intrinsic value?'”
If the answer is yes, Tilson says it’s time to go long regardless of what the stock has done in prior months, or even years.
It may not be the next Sirius Resources…
On the weekend I heard one investor discussing why The Walt Disney Company (NYSE: DIS) will have an incredible next 10 years.
Disney has theme parks, Mickey Mouse, ESPN and makes movies.
It’s on this latter point that U.S. hedge fund manager and best selling author, James Altucher sees the opportunity, specifically Disney’s recent $2 billion purchase of Lucasfilm and the Star Wars franchise.
May the $50 billion force be with you
Altucher says Disney aren’t going to make 3 more Star Wars films, they are going to make 50 more Star Wars films over the next 50 years, and each film they are going to make $2 billion profit. In effect, Altucher says Disney will make 50 times the $2 billion they paid for Lucasfilm.
And all that comes on top of Disney’s other movie franchises like The Avengers, Iron Man, Toy Story, Monsters Inc, X-Men and more. As well as movies, think books, clothing, toys, new rides, new theme parks. Cheap, good fun entertainment never goes away, regardless of the economy.
Walt Disney is a $115 billion company.
Altucher could look back at Disney and say “I missed it.”
But he’s looking forward, at a great company, with great assets, run by talented, committed people.
One of the safest bets going
I don’t own Disney. But now it’s firmly on my radar. An investment today in Disney alone is not going to make me a millionaire.
But as far as safe bets go, a bet where, with a long-term investment horizon, you’re unlikely to lose money, it has to be up there amongst the best.
Australian investors have typically avoided buying U.S. shares, presumably because it’s just that little bit harder than normal to set up an international trading account.
It’s not. Give optionsXpress Australia a try. I have an account with them. Neither myself nor The Motley Fool Australia has any affiliation with the company.
The greatest growth companies on the planet
The U.S., and its recovering economy, is home to some of the greatest growth opportunities on the planet — Google (Nasdaq: GOOG), Apple (Nasdaq: AAPL) and even Facebook (Nasdaq: FB).
I have positions in all 3 companies.
Yes, even Facebook… although given it’s a higher risk investment, my weighting is quite modest. I just can’t help but think a company that’s been as successful as it has been will eventually figure out a way to monetise its one billion plus sets of eyeballs.
One way to play the plunging Aussie dollar… before it’s too late
Our friends at Credit Suisse and their 75 U.S. cents 12-month prediction for the Aussie dollar may or may not be right, but you’d have to say the odds of the dollar continuing to fall are in your favour.
Buying U.S. stocks with Aussie dollars could be one of the best ways to play the falling dollar, and the recovering U.S. economy.
The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!
Bruce Jackson has an interest in Lynas, Google, Apple and Facebook.