By MoneyMorning.com.au
Don’t let a bunch of pin-striped bankers tell you how to invest…
When we told one of our new research assistants we couldn’t give a stuff about central bank bailouts, money printing and European sovereign debt, he was shocked.
“None of it matters,” we told him.
“I won’t let a bunch of pin-striped pen pushers and bankers dictate how I play the market. I’ll keep doing what I’ve always done. Scan the market for stocks that could give investors triple-digit percentage gains.”
“And what’s more, I’ll show you just how I plan to do it.”
The result is a film explaining our five best small-cap stock ideas for 2012… you can watch it by clicking here…
A Small-Cap Stock Buyer’s Market
The backbone of our strategy is managing risk.
But not in the way you think.
We’re not managing risk by avoiding it; we’re managing risk by meeting it head on.
While the mainstream runs scared (a headline in yesterday’s Australian Financial Review (AFR) read, “The party’s over, so rein in your risk”) we see value we haven’t seen since 2009.
The “rein in your risk” stuff that mainstream journos write today is what we wrote about two years ago. The AFR went on to say:
“The International Monetary Fund has warned of a decade of restraint for overleveraged economies as they look to make amends for their past sins.”
Don’t get us wrong. That’s good advice… if you had read it in 2009 or 2010.
That’s when we told investors the market had topped out. That it was time to take profits off the table after the 2009 stock rally.
And since then, we’ve warned investors that buying and holding blue-chip growth stocks is a loser’s game. Sure, you’ll get some winners, but as we told Australian Small-Cap Investigator readers in November 2010:
“…the days of locking stocks away in a bottom drawer and forgetting about them are long gone.”
That’s still true. But it doesn’t mean you should turn your back on stocks. Because today the trick to investing isn’t to avoid risk and volatility, it’s to embrace it.
And as we see it, there’s a simple and – if you do it properly – low risk way of using risk and volatility to your advantage…
Don’t Lose Money Like Most “Safe” Investors
It’s funny, but what many investors think of as a “safe” strategy is actually not far from being the riskiest strategy they can make.
Time and again, we hear people say they only buy blue-chips… safe stocks… or big companies… “anything else” (they say) “is just too risky”.
You can see the problem with that strategy right here on this chart…
Source: CMC Markets Stockbroking
It’s the S&P/ASX 20.
We’ve chosen this index because it contains 20 of the Aussie market’s biggest stocks. Stocks that most mainstream investors have in their portfolio.
The problem is obvious. Those who bought these “safe” stocks since 2007, are losing money.
In fact, today the index is trading back at 2006 prices.
So for six years, buy and hold investors have seen almost no gains on their blue-chip stock portfolio. Even during the past year, “safe” blue-chip stock investors have lost 15% of their wealth.
Yet still, investors turn to these loser stocks as a way of minimising risk.
When what you should do is ditch them completely.
Then stick most of your cash in the bank.
Buy a handful of dividend paying blue-chips. And with a small portion of your wealth, use volatility and risk to your advantage.
The best way to do that is in the small-cap sector of the market…
The Best Time to Buy Small-Cap Stocks
We know. That sounds crazy.
Yesterday, Spain only just managed to sell €3.2 billion of bonds… reports are that Chinese house prices are falling… and the Reserve Bank of Australia is so worried about the Aussie economy, an interest rate cut is on the cards.
Only a mentalist would think about buying stocks with all that going on in the background.
Well, feel free to call us mental. Because we’re buying stocks.
And if you’ve any interest in having a plus sign in front of your portfolio at the end of this year, we strongly suggest you join this mental gang and buy stocks too.
You see, the reason we don’t care about bailouts and central bankers, is that markets and businesses carry on regardless. In fact, most of the business people we’ve met have nothing but contempt for the folks in Martin Place and Canberra.
Even though the central bankers and pollies think they run the economy, the truth is – they don’t. The people running the economy are individuals… you included.
Think about it. Very rarely do you sit around and wait to see what the pollies or central bankers will do next.
(Even if you put off buying a house because interest rates are going up, that’s just one decision out of the millions of decisions you make each year.)
Business people and entrepreneurs are the same. They’re in the game to make a quid. And you don’t make a quid sitting on your hands. You have to do things… come up with ideas… invent new products and services… muscle in to new markets… the list goes on.
All those things (and more) are happening today… as you read this. And they’ll keep happening whether Spain gets a bailout from the European Central Bank or not.
Take one of the companies we recently tipped in Australian Small-Cap Investigator. It has increased its customer base by an average 159% per year since 2007… it has signed six major deals with multi-national companies in just the past 12 weeks…
And it’s currently working on a new project that could cement this company’s place as a market leader in the Aussie market. Yet the company still has a market capitalisation under $100 million!
It’s those small entrepreneurial companies that we look to invest in. Sure, there’s a lot of risk, and their share prices can be volatile.
In some cases, if the company backs the wrong idea, the shares could even halve in value (just as many blue-chip stocks did in 2008, such as the four major banks).
And if the worst happens, they could even go bust (just like blue-chip stocks Babcock & Brown, Lehman Brothers and Kodak).
But here’s the thing. When a blue-chip company gets things right, it’s not often you see the share price double, triple or quadruple in the space of a few months.
Yet that’s exactly what you can see with small-cap stocks…
Using Small-Cap Stocks To Make Triple-Digit Gains in 2012
You invest just a small part of your portfolio (say 10%) in volatile small-cap stocks. If the worst happens and every one of the stocks you’ve backed goes bust (that’s not very likely), the most you’ve lost is 10%.
But if things go your way, and these tiny entrepreneurial dynamos hit the big time, you could double, triple or quadruple your 10% in just a few months.
That’s the beauty of small-cap investing. You only need to place small bets in order to have the chance to make big gains.
And because you’ve only placed a small bet, your downside is limited to the value of your investment.
The bottom line is this: right now, there’s plenty written about how risky the market is (and it is… very risky). But rather than running scared, it’s your cue to look for spectacular profit opportunities.
And believe me, from what we can see of the market right now, there are plenty of opportunities for risk-hungry investors in small-cap stocks to make big gains.
In fact, in our view, the market hasn’t looked this good in over three years. That’s why now is a great time to buy small-cap stocks.
Cheers.
Kris
P.S. Remember to check out the latest video footage where we explain our top five small-cap stock picks for 2012. Including how we identify these potential money-multipliers, and the easy steps you can take to buy a stake in these companies today. Click here for more…
The Conference of the Year “After America” DVD
Why You MUST Speculate
Disruptive Technology Stocks For Smart Small-Cap Investors
How to Use Small-Cap Stocks to Beat the Buy-and-Hold Blue Chips
Tradervox (Dublin) – There has been very positive reports coming from the UK this week, and the pound has found support to rise to 19-month high against the euro. Minutes from the BOE April meeting showed that Adam Posen has dropped is push for further stimulus supporting the current monetary policy which won 8-1 on the vote.
Tradervox (Dublin) – The Aussie and kiwi have come from a one week low after the Xinhua News Agency reported that reserve requirement ratio may be cut in China. The two south pacific dollars had fallen earlier due to a decrease in raw material prices reported by Standard and Poor’s GSCI Index. The New Zealand dollar dropped to a week low against the US dollar while the Aussie shed 0.3 percent.
Tradervox (Dublin) – The Swiss government has endorsed the Swiss National Bank Interim Chairman Thomas Jordan as the new SNB president. This announcement was given yesterday after the policy makers met to discuss the issue. The Swiss franc fell against the euro after this announcement. The decision by the Swiss policy makers has eased concerns that the SNB president would abandon the 1.20 limit cap policy that Jordan has pledged to stick with. Jordan is seen by the market as a proponent for the policy and he has indicated he is willing to do anything to protect the cap.
