Three Hot Investments
The Investment U E-Letter: Issue # 355
Friday, July 23, 2004
China Stocks: Three Hot Investments – Poised for a Meltdown
By Dr. Steve Sjuggerud
President, Investment U
“I like China,” a broker told me at a neighborhood Christmas party, “and nanotech What do you think, Steve?”
That was the opening sentence of my January 2004 newsletter. Here was my honest reply about China stocks: “China is a bubble like the Nasdaq in 1998, and nanotech is a long way off. Both could double from here of course. But both will likely end badly.”
I knew these were speculative bubbles, waiting to burst – this was where the hype was as hot investments go
And burst they did
The Greater China Fund (CHN) has fallen from $48 at the beginning of January to $26 today. Ouch! And Merrill Lynch’s Nanotech Index peaked at over 300 in January; now it’s around 190 ouch, again!
People who bought expecting riches in China and nanotech have since lost over a third of their money!
I’m always on the lookout for where the speculative money is headed – where the hype is – for a simple reason: Those are the markets that are likely about to fall
What the “Regular Joes” Are Buying Now
I’ve found that the Regular Joes are generally the last ones into a major bull market.
These folks are the ones buying China stocks at the peaks in China, or nanotech, or whatever. If you’re smart, you’ll avoid buying in markets like these at speculative peaks – markets that everyone at the cocktail parties is talking about
Right now, the latest sectors that have sucked the Regular Joes in are Transportation and Energy. These are sectors to either sell or avoid right now
The Regular Joe (and his broker) loves Energy shares right now and that means oil stocks, like the Exxons and Chevrons of the world.
Right now, I would avoid Transports and Energy stocks, as they should weaken, based on what’s popular with the little guys.
The breakdown in energy stocks hasn’t arrived yet, but the excitement over them is similar to China and nanotech at the beginning of the year and it may end the same.
Avoid Microsoft, Too?
Lastly, one surprising stock to avoid is Microsoft at least in the near term based on the enthusiasm of the small investor
The small investor loaded up the truck with shares after Microsoft announced its special dividend. And when the small speculator loads up there’s generally very little upside left
If you believe (as I do) that when the “little guys” all do the same in droves, it’s time to do the opposite, then you’ll do this: You’ll avoid Transports and Energy (watch these stocks for a breakdown). And you won’t buy Microsoft now.
Good investing,
Steve
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