Test Your Investment Knowledge: What’s Your “IU IQ?”
By Dr. Mark Skousen, Chairman, Investment U
Friday, July 28, 2006: Issue #564
It’s been rough sailing on the market so far this summer. The Dow’s seen a flurry of triple- digit advances and declines since early May. Here at Investment U, we’ve been staying the course, following some timeless rules for investing and keeping an eye on everything from the Fed’s interest rate policy and the U.S. dollar, to small-cap stocks, gold and real estate.
- Hedge funds
- Precious metals
- Small business ownership
- Regular contributions to company 401(k) plans
2. Understanding macroeconomic climates, learning from past investment greats, knowing your strengths and weaknesses and being critical of “charismatic gurus” are four timeless rules espoused by famed speculator Jesse Livermore. What is his fifth?
- Only purchase stocks with a P/E below 10
- Buy only on positive news
- Always save some of your gains
- When you’re tempted to sell, wait five days
3. What is the best way to borrow money, interest free, in 2006?
- Use a margin account with your broker
- Borrow from friends and relatives
- Take a loan from an overseas, “phantom” bank
- Apply for a line of credit from respected credit card companies
4. What key indicator has predicted an economic recession and a bear market in stocks almost every time in history?
- An S&P P/E ratio of 30 or greater
- The yield curve
- A 4% decline in the CPI (consumer price index)
- A bearish January
5. What commodity is up 317% since July 28, 203, without a single drop in price?
Answers to “Test Your Investment Knowledge”
1. C – Owning a small business. According to The Forbes 400 Richest People in America survey, only 10% of America’s wealthiest people made their fortunes in the stock market. Read more about this and Dr. Skousen’s other most profitable investment surprise in Investment U E-Letter # 520: Today’s Most Profitable Investments: Revealing the Greatest Source of WealthOutside of the Stock Market
2. C – Always save some of your gains. Jesse Livermore, unfortunately, never lived up to his own advice. By taking some of your investment gains and investing the funds in alternative investments, such as real estate, art and collectibles or gold coins, you protect yourself in case you are wrong – and diversify your portfolio. See Investment U # 559.
3. D – Credit card companies. Surprisingly enough, the same people who are known for charging 19.9% plus fees are now offering, to people with qualified credit, opportunities to borrow money interest free. To find out the details on getting the cash – and to get a word of caution – please read Investment U #500 Borrowing Money in 2006: The Quickest Way to Borrow $43,800, Interest-Free.
4. B – The yield curve. This indicator measures the yield on interest-bearing instruments at various dates of maturity, from one day to 30 years. It compares the short-term rate with the long-term rate. To really have a negative impact, the short-term rates need to rise sharply compared to the long-term rate, by at least by 1% to 2%. As long as the Fed doesn’t curtail the growth of the money supply, we won’t be seeing a recession or a bear market in stocks this year. To find out more about the yield curve and what it means for the U.S. market in 2006, read Investment U #499: The Inverted Yield Curve: Your Investments Are Under Siege
5. C – Uranium. Today, the price is $45.50 a pound. It caps a 468% rise since 2000, when uranium cost just $8. In 2005, uranium demand outstripped supply by around 100 million pounds. And the fundamentals point to higher prices still – much higher. Check out IU’s free report, Investing in Uranium: Three Ways to Invest in Uranium Now, Before Prices “Go Nuclear,” and find out why this is the one bull market every savvy investor should participate in.
How did your investment knowledge test out? See below…
5 – Dean of Finance
4 – Business Professor
3 – Investment U Graduate Student
2 – Investment U Undergraduate Student
0-1 -Try Again In the Fall