Global economy, in it for self
Heart full of madness, covered with kind
Pleasure designed to take over your mind
Furnished in godliness, painted in good
This tainted priesthood got real saints misunderstood
While classes in government, set up the veil
And cultivate minds for more mythical tales… – Lauren Hill, Check Your Motives and Thoughts
Let’s step back and review some highlights of the past few years of Revolution Investing, which launched back in January 2010.
First off, here’s me explaining to WSJ’s Simon Constable, why we launched the newsletter and part of what the whole Revolution Investing approach is about.
One of the advantages of looking at the corporatist, easy money, bank bailing out economy we’re forced to live in under the Republican Democrat Regime that’s been in power my whole life and yours, is that we can look past the hiccups and noise that distracts other investors. Keeping a level head and using sell-offs to our own advantage has come in handy time and again over the past four years. That’s why I preach using a playbook that you establish with a level head ahead of time before ever getting started in the markets.
In 2010, in a newsletter we called “Three coming bubbles and how to play them,” we had to look past the noise to profit from the markets’ fear, using our playbook:
“So where are we in the cycle right now? Well, we’ve seen the economy stabilize after the most recent economic crisis and corresponding market crash for several quarters in a row now, right? Gross domestic product growth’s not exactly sizzling, but it’s not exactly contracting badly either. Real estate’s not exactly great, but it’s also not exactly crashing like it was when the Fed and the government went bailout and started targeting trillions in new welfare programs for the homeowner class. The stock market’s been in rock-you-steady rally mode for many weeks and also for many quarters since the Fed started its first round of huge quantitative easing (QE1) and the government went on its fourth major stimulus package of the last three years under both Administrations.
And what is the Fed doing now and what impact will it have on the markets next year? Well, they’re juicing the money supply with another $600 billion in cash for the economy. We can debate whether it will have any impact on small business lending (it won’t) and whether it’s another form of bailouts for the same banks who have yet to be prosecuted for any crimes stemming from their role in the last round of bubbles and busts, but what’s been the consistent result of the Fed’s move to juice the money supply? Especially when the economy’s been fine and/or on the rise already? Assets bubbled. And that’s when the Fed was simply using artificially low interest rates to juice the money supply. We’re talking about as Brazil’s finance chief put it, “Throwing money from a helicopter.” Helicopter Ben, indeed.
So what should we do? Be prepared for another bubble, that’s what. Or several asset bubbles, to be exact.”
Stocks were much cheaper back then, and I pointed that out to you as I built our portfolio up like here in 2010’s “Catching the next revolution“:
“I’ve been finding a lot of companies that are driving revolutions, and some that are along for the ride, that have potential for huge growth in coming years. What’s blown my mind during my work lately has been how inexpensive so many of these high-growth stocks are right now.”
Unfortunately, outside of Apple and a few other big cap stocks, valuations are much higher across the board as prices have risen even faster than earnings have over the last five years. But that doesn’t mean we sell out. Here’s me keeping you focused on buying revolutionary companies when their prices are down, also from back in 2010 in “Real revolutions you can profit from“:
“While the world was focused on Greece and the 1,000-point, computer-driven market drops — and how to game those crises — the unstoppable revolutions being driven by innovation are still unfolding before your eyes.
Think about these facts instead of letting the noise of unheard of market volatility and European government bailouts distract you from the mission of protecting and building your portfolio.
The vast majority of corporate computers are running a version of Windows that’s at least two generations old. Tablet technologies and mobile apps are driving brand new markets for consumers — and the corporate world hasn’t even caught up to the app concept at all. Think of all the internal human resources, supply chain management, sales force automation, and other applications that corporations will be rolling out to their workers in coming years.”
Going back to the idea of having a playbook in place ahead of time before ever getting started in the markets, our playbook continues to keep us steady and long the best revolutionary companies and sneaking in the occasional short positions for now. Such as we have done in with stocks like A123 and other alt-energy stocks when they were about to crash:
“Here’s another place I’m looking for a crash. Solar. Back in June I wrote up a detailed analysis of why I’m looking for solar to crash. The upshot is that the appetite for government subsidization of this industry is over and we’ve seen the top. I didn’t want to start shorting the names at that point because I was too bullish overall and the stocks in the sector were in rally mode.
Well it’s five months later and the solar stocks are up big now and starting to crack and I’m looking to start adding some shorts here. Two of the names I mentioned in that June 8 newsletter were Ener1 and A123 Systems . A123 reports after the close today and while that means it could go either way tomorrow, I’d be looking to start shorting this name either way. Perhaps some long-dated slightly in the money puts today, giving yourself at least a year out, say the January 2012 $10 or $12.50 puts.”
Don’t forget our repeated predictions of the App Revolution Bubble:
“Of all the revolutionary trends we can find to invest in, including the mind-blowing socioeconomic achievements we are witnessing for hundreds of millions of people who are becoming middle-class, there’s not a trend in the history of the world that has shown the growth and ultimate marketplace size as the whole App Revolution has.”
Currently, of course, I think we should be getting ready for a similar type of playbook for wearables, drones and robots.
Be vigilant, be level-headed and keep your emotions in check as we continue to navigate these strange new times and economies with our long-time successful approach of Revolution Investing.