Investment U E-Letter: #361
Friday, August 13, 2004 What Always Works
3 Secrets That Let Daniel Drew Become one of America's Richest Men
By Dr. Steve Sjuggerud
President, Investment U Daniel Drew was bigger than Warren Buffett and Alan Greenspan combined back in his day… Sure, he was a real dirtbag… He cheated his fellow church parishioners out of money. He was a director of one of the biggest companies in America, yet consistently bet against it in the stock market for huge profits. In short, he was a bad dude. But Drew became one of the richest men in America through trading stocks in the middle to late 1800s. In many ways times were much different… Drew rode a horse to Wall Street! And there was no SEC, no Eliot Spitzer, and no Federal Reserve. But in many ways, things were EXACTLY the same then as they are today… And the secrets Drew used nearly 150 years ago to build his fortune are the exact same ones that work right now. Drew revealed those secrets in The Book of Daniel Drew. Let's consider a few of them today, and how we can use them to generate wealth like he did… Drew's 3 Secrets: Clean Strategies from a Dirty Player 1) "The money market is the key to the stock market. They who control the money rate also control the stock[s]." He's right… but it's amazing that he understood this 150 years ago… before there was a Federal Reserve controlling the money rate. For proof of how right he is even today, consider this… When interest rates are rising, you don't make money in stocks. Over the 17 years from 1964 to 1981, the Dow (the stock market) gained less than one point (874.1 to 875). During that time, interest rates rose from 4% to 14%. Now consider the next 17 years - from 1981 to 1998. Interest rates did nothing but fall. And the Dow went from 875 to over 9,000. In recent years, Federal Reserve Chairman Alan Greenspan has forced interest rates to their lowest levels in 40 years. So stock prices rallied. Daniel Drew knew the secret 150 years ago… he who controls the money market controls the stock market. The big question is, how much more room does Greenspan have to lower rates? Not much… 2) "The way to make money in Wall Street is to calculate on what the common people are going to do, and then go and do just the opposite." Drew was a master of this. If he were around in 2000, he would have been betting on a crash, as "the common people" were all buying stocks. For a few ideas today, "the common people" don't want anything to do with gold coins and commodity investments yet. So I've been buying in this area. And "the common people" are still heavily invested in the stock market, thinking that's the only game in town. So I'm generally avoiding stocks. When you can determine that most people are all doing the same thing with their money, don't consider it as a comfortable investment - chances are, the big gains are already behind you there. 3) "I ought to have [closed my position] without a moment's delay - cut short your losses and let your profits run, is the rule." Wow… I'm confident the "cut your losses and let your profits run" rule is the difference between successful investors and those who'll never make any money. I just didn't know that it was known and solidly established 150 years ago… You'd think that a rule so well known wouldn't work anymore. But people never seem to learn… most folks take a quick profit when they see it, and they hang onto their losses - exactly the opposite of what they should be doing. So let's review… - "The money market is the key to the stock market. They who control the money rate also control the stock[s]."
- "The way to make money in Wall Street is to calculate on what the common people are going to do, and then go and do just the opposite."
- "Cut short your losses and let your profits run, is the rule."
These rules made Daniel Drew enormously wealthy. They were the path to real wealth in investing 150 years ago. And they are still the best rules to follow today. They say human nature doesn't change - the emotions of greed and fear still overpower the rational ideas of the "right" way to do things, like invest. When you get caught up in the excitement of an investment, or of the times, go back and review these three rules. If you consistently stick to them, you might just join Daniel Drew in the ranks of legendary investors… Today's IU Crib Sheet- I was lucky enough to be asked to write an introduction to the latest release of Daniel Drew's book. To check it out, visit www.fraserbooks.com and click on "specials."
Good investing, Steve Related Articles: Investment U Archives
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