No, not Vegas. New York. We’ll look at the data later, but first a story. The story about how I met my wife and some fun in Las Vegas, the former gambling capital of the world.
I went on my first date with Carol at the end of 1996. Now, truth be told, she didn’t know it was a first date, because I had asked a coworker to invite Carol to go with us to the COMDEX conference in Las Vegas for five days. A five-day first date? Go big or go home I say.
I’m not a gambler, but since this was a first date and we were having a lot of fun when I wasn’t at the convention, Carol and I decided to take craps lessons. Craps always looked like a lot of fun. It seemed very social with people all cheering and talking around a table. If I was going to gamble, this would be my kind to try.
We took our lesson for an hour and then stayed and played a little bit. It is fun. That word “fun” being the key though. Gambling is entertainment because the house always wins. They didn’t build $4 billion casinos on winners, as they say.
Later that evening we had tickets to see Cirque du Soleil Mystère at Treasure Island. Great show, by the way. It’s Andrew Lloyd Webber meets Pink Floyd and is extremely hard to describe otherwise. But very cool indeed.
Our tickets were for the 8:00 p.m. show and we had 20 minutes to kill before the doors opened, so we played some craps. When the line to the show started moving, we were up a few hundred dollars and it was time to run to the show. We took our winnings and enjoyed Mystère.
To celebrate our winnings, we splurged and rented a Dodge Viper….twice. Talk about a fun car. Front engine, 415 hp V-8 with a light back end. Phenomenal in the interstate on-ramps. Fast too. 0-60 in 4.0 seconds…and a license plate that read BYEBYECOP. There are some great Viper stories, two that involve policemen and no tickets. I’d be happy to share those in person. Ask me sometime.
Cirque du Soleil Mystère at Treasure Island
Carol picking up the Viper at Rent-a-Vette
Anyway, the point is, the only reason I walked away with any money at the Treasure Island Casino that night is because I took it off the table when I was ahead. I know Vegas hates me. They need and want people who lay down big bucks on the hope and prayer of a big win. In Vegas, the house always wins. The longer you play, the more you lose.
The same can be said of Wall Street.
According to CNBC in July, the S&P Technology sector index is just now back to even from the 2000 bubble. Hold on. JUST NOW? 17 years later. Back to even? I wonder if they factored in the ginormous commissions and fees paid to brokers all along the way…because the brokers and house always get their cut.
Look at the chart of the 1999 tech bubble when the NASDAQ screamed up 85% in one year. Gamblers… I mean investors …. flocked to the markets to take plow in their hard-earned savings and win big. Win vs earn. Nobody “earns” the lottery. One exec in the financial industry described the actions of investors as “the penguin-like way that gaggles of investors jumped headfirst into the next big trend.” These brokers have a high regard for us as you can clearly see.
Well, a few years later, in 2006, it was happening again. Stocks were soaring. People laid down their money on red ….er … I mean stocks, like Fifth Third Bank up 1881% in 2006. But then what happened? It all came crashing down, like it always does.
Unfortunately, most investors buy high and sell low. As we saw above, the tech index is just now back to even from 1999, and the losses of 2007-2008 took until early 2013 to get back to even. But the house always wins, even when we lose. The brokers and brokerages always make money.
We’ve been led to believe that the traditional stock markets are safe because they are large, run by really smart people, regulated, and overseen by the various government agencies in charge of protecting us. Enron, Madoff, and many others have “slipped past” examiners, and the results have cataclysmic effects for hundreds of thousands of investors and clients.
Do you know what a CDO is? Neither did 99% of the investors who bought them. It’s a Collateralized Debt Obligation and the definition is below. But it gets better. To fuel even bigger bonuses, and allow excess to run rampant, derivatives then get layered on. Now I really don’t get it. Do you? Check out the definitions below. Or just skim over them if your eyes start to bleed.
These things sold like hotcakes, didn’t they? They were the next big thing, sure to skyrocket our portfolio returns even higher. But to me they sounded like the last few words of a famous Shakespeare quote we had to memorize in the 10th grade.
Out, out, brief candle!
Life’s but a walking shadow, a poor player
That struts and frets his hour upon the stage
And then is heard no more. It is a tale
Told by an idiot, full of sound and fury
Macbeth (Act 5, Scene 5.)
CDRs, and Derivative-based CDSs. A tale, “full of sound and fury, signifying nothing.”
But in this case, a tale not told by idiots…but told by wolves in sheep’s clothing. Wolves that made billions in bonuses while the sheep lost homes, jobs, 401k plans, and for many in their 60s, any hope of a wonderful retirement.
The movie The Big Short has a great final scene and the link to that scene is below. If you haven’t seen the movie, do so. You’ll get a snapshot of what the “house” looks like in the Las Vegas of the east, NYC. Spoiler alert, this is the finale of the movie.
All we need to do is simply look at the huge bonuses presented to tens of thousands of executives from companies that lost trillions in investor money. It is obvious that regulation and oversight haven’t helped the average investor much when it comes to wall street. Quite frankly, I’m not sure it ever did.
You see, Wall Street really is the new Las Vegas. It’s a place full of excitement and gambling. When we buy a stock or fund, we hope we win. Sure, we are using some economic fundamentals to make a rational judgement about why this or that factor will make this particular stock a great pick. Or maybe we let the experts pick and invest in mutual funds. But either way, in the end, because there are so many variables involved, many that we have no control over, investing in the stock market is a gamble. Or a “risk,” in Wall Street speak.
Factors out of our control move the markets
But let’s assume that everything on the street is up and up. It isn’t, as we’ve seen. I’m not a Debbie Downer, but there are huge, global, non-economic factors that we don’t control. Korean nukes. Iran vs Saudi Arabia and the Shia vs Sunni wars in the region? Avian bird flu? These can and do have significant impact on the markers, don’t they?
There’s also the issue of market fundamentals. The big question I want to know the answer to is this: Who’s going to buy the $30 trillion of stocks and bonds now held by the baby boomers as they sell them off to fund retirement? The supply of equities is going to explode. Where are the buyers? Who are the buyers? Where’s that money coming from? This topic was covered in this column a few weeks ago. To read the article: Who’s going to buy them? Click Here
Nobody seems to be addressing this very serious and harsh supply/demand reality. Can anyone see a way forward that will work out well? A way that will scream “winner” for the average investor? I can’t, and the silence on this topic in the mainstream media is deafening. But no matter what, we can all rest easy and be happy knowing that the insiders, brokers, and executives on Wall Street will figure out a way to make a fortune while the rest of us suckers take it in the shorts.
A few years ago, a pre-IPO stock I purchased in the oil industry went public on the London AIM exchange. It soared. I sold a little more than half my holdings at one point when it was up significantly, but nowhere near the top. Sure, I could have tried to time the top of the market and made more, but that’s too much like gambling for me. The stock has since ridden the market roller coaster, up and down, but I don’t care. I’m playing with house money now.
So, what can you do? What makes sense for stock market investors in a strong bull market? I’m not the Bard by any means, but here’s my take at some advice in the form of a rhyme:
Today with the markets at an all-time high,
Take some money out and diversify.
I probably should stick to my day job. But the point is, take money off the table now while the getting is good. Seize some profits when the market is soaring. When the bubble bursts, it’s too late. And while it’s never possible to time the market high, knowing when to say “when” is mature, wise, and smart. Trust me, it’s wonderful to be playing with house money. No one is going to make a killing with this strategy, but they’ll probably never get killed either.
Question… What have you done to diversify your investments? True diversification means both out of the traditional markets and out of North America. It means ownership of international assets, diversifying additionally by asset class, geography, and currency. Not easy to do, but critically important for long-term stability and return.
Look at the Harvard Endowment diversification pie chart in 2010. The allocations are strongly hard-asset rich and international.
Now look at Harvard’s allocation in 2016 alongside several other Ivy League Schools. Can you see how they still have very little invested in the U.S. Stock Market? What do they know that the average investor doesn’t?
Does your diversification look anything like the Ivy League allocation? Most folks are heavily weighted in traditional U.S. and Canadian equities. And they remain there far too long. These guys aren’t. They know the value of true diversification. They also know that the key to winning is to take money off the table when the getting is good.
The Dow is at 22,331 this week. Might be a great time to take a chunk of profit off the table and diversify into some hard assets offshore. What do you think?
Three ideas you should consider:
Because I absolutely believe in my company and my products, here are 3 things that might make sense with some of the money that you take off the table. They offer international asset class diversification into hard assets.
- Own a cash-flow condo in Nicaragua. Enjoy the oceanfront views a few weeks a year on vacation and then rent it out to surfers who are looking for the best waves in Nicaragua right out your front door. In addition to cash flow, property appreciation in Nicaragua is bound to be strong as the county continues its popularity growth. By the way, Gran Pacifica will keep 33% of these Las Perlas II Condos for its own inventory and cash-flow. We believe the story we tell. Heads up… A recent article in the Huffington Post also highlights why Nicaragua is a real sleeper of an investment. It’s the Perception vs Reality issue that creates an arbitrage of information, and arbitrage is money on the table for savvy investors.
- Get a 2nd residency in Panama paired with valuable Teak Timber for long-term asset class diversification. Ownership of Teak is the antithesis of cash flow. In fact, the long lock-up cycle makes it the perfect generational wealth stewardship asset class. Remember above. 10% of Harvard’s endowment is in Timber. Hmmmm. I personally own 19-year-old Teak in Panama that I planted in 1999. Baby Teak is being planted every year now at Gran Pacifica that you can own for your kids, grandkids, and generations beyond. A 2nd residency is simply a “Plan B” to have in your back pocket. Everyone who’s really worried about the political or economic state of affairs should have their money where their mouth is and hold a 2nd residency. I said so recently at the Freedom Fest to about 1800 folks. Watch the 5-minute video here. My Plan B and legacy oriented asset class ownership is in place. Is yours?
- For accredited investors only, you can own, alongside me, a pre-IPO stock that is asset rich. ECI Development owns over 4000 acres, stretching along 5 miles of beachfront in four countries. Homes, condos, hotel, clubhouses, restaurants, a golf course, and services are in place today. The company is ramping up rapidly and expanding to serve an even greater share of the boomer retiree market who want to live overseas. A short video taken at a Stansberry Conference a few years ago highlights who we are and why you might want to take a deeper look. If you are accredited, we’ll be happy to share some additional information about how you can own a part of ECI Development.
To wrap up, let me circle back to Las Vegas. Eighteen months after that first date, Carol and I were married. We’ve been married 19 years and have two wonderful daughters who grew up in Nicaragua enjoying Girl Scouts, gymnastics, and ballet. We’ve returned to Las Vegas many times over the years, not to gamble but to have other fun. There are just so many other fun things to do in Vegas.
Mike Cobb, Lief Simon, Kathy Peddicord, Joel Nagel, and friends having fun in Las Vegas
For example, last fall, some friends and I took a full-day SWAT course with live fire simunitions in the room-clearing exercises. FUN. Driving fast cars at the track. AWESOME. Shooting machine guns and seeing comedy shows most nights are great too. For someone who doesn’t gamble much, Vegas can be a great town. Plus, it’s the place I fell in love with my wife. What can be sweeter than that?
But Wall Street? Not nearly as much fun. If you like to gamble, stay and play. The brokers and the house thank you. But for folks like me, for whom gambling is simply entertainment, finding other more predictable and controllable ways to make money feels a lot better. I know very few people who made their fortune on Wall Street playing the market. Most of the wealthy people I know made their money in real estate, owned a business, or profited from something tangible.
I do know brokers who did exceptionally well. But they made money on the backs of the investors, not in the market playing the stocks. This knowledge tells me everything I need to know.
Me, I’m going to largely stick to hard assets. Real products and actual things makes so much more sense to me than derivatives of CDOs whose creation serve no one but the brokers who earn fees from the sale of them. I do have some money in the traditional markets. It’s part of my diversification strategy.
Also, unlike most folks who find it hard to diversify internationally, I struggle to keep the right part of my wealth in the U.S. I try to keep 25% of my assets in the U.S. and most of that in stocks. But the lion’s share of my assets are international hard assets or invested in companies with a huge asset base and strong balance sheet. I’m just funny that way.
If you feel like I do, and want to diversify internationally with some of your assets and to own tangible items of real and lasting worth, reach out. Right now is a great time to take some profits with the markets at all-time highs. We’d love to explore some ideas together and perhaps, see if there’s something in our product offering that’s right for you. Be in touch.
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