Investing Guide: The First Investment Rule… and How To Put It To Work

by Dr. Mark Skousen, Chairman, Investment U
Tuesday, October 4, 2005: Issue #474

I am delighted to be the new chairman of Investment U, and to build on Steve Sjuggerud’s success. I look forward to meeting you through these issues and sharing some thoughts. Let me start off this investing guide with my # 1 investment rule.

Applying this rule today will both guide you for the long haul and generate excellent profits right away Violating it will make you vulnerable to big losses.

Now, before you dismiss this rule as too simplistic, consider how often investors violate it.

Investors will try to be “contrarians” by being a bear in a bull market, or a bull in a bear market. (Contrarian investing works ONLY during market extremes, which happens very seldom.)

They think it’s too late to buy because a stock or mutual fund has already gone up too much so they remain on the sidelines, fretting.

I learned these lessons the hard way – through my own mistakes. (The best way to learn!)

The Shocking Truth and How to Profit From Rule #1

Peter Lynch, legendary manager of the Magellan Fund (the most profitable mutual fund in the 1970s and 1980s) told me that most of the shareholders LOST money in the Magellan Fund because they refused to stay invested in the fund for the long term.They tried to buy in and out of the fund.

Edwin Lefèvre, author of Reminiscences of a Stock Operator, which tells the story of the world’s most famous speculator king, Jesse Livermore, says that rule # 1 of our investing guide is “one of the hardest lessons to learn.” Indeed!

Here’s how to make money with Investment Rule # 1:

1. Most bull markets (and bear markets) last several years, so there is plenty of time to get aboard.

2. Answer the question: “Where are the bull markets – and bear markets – today?”

And here is how I would answer that question right now:

Foreign stock markets are hot, especially Europe and Asia. Buy these TODAY.

iShares MSCI Japan (black) and iShares S&P Europe 350 (gold)

Commodities are in a long-term cyclical bull market due to the war on terrorism and inflation. It could last another five years. We are in the midst of a major growth market in oil and gas, alternative energy (uranium, etc.), and mining (gold, silver, platinum, copper, palladium, etc.). Buy these TODAY.

streetTRACKS Gold Shares

These are today’s bull markets, with plenty of room left to run. Remember our Investing Guide Rule #1: “Be a bull in a bull market, and a bear in a bear market.”

And one final tip: When there are corrections in these bull markets, buy on dips.

What if we are near or at the top of the market? I don’t think we are, but use stop loss orders to protect yourself (I will write more on the use of protective stops in future IU columns).

Good trading, AEIOU,

Mark

Today’s Investment U Crib Sheet:

• Not only are individual investors moving some gold into their portfolios, institutions are, too. For more on why foreign banks are swapping U.S. treasuries for metals, check out IU #471: Foreign Buying of National Debt.

• When Losing 11% is Winning
• The Permanent Portfolio Fund: Harry Browne’s “Peace of Mind” Investment
• Bear Markets: How to Uncover Profit Opportunities When Selloffs Emerge

Sign Up now and receive this Free report: Collect 122% in the Next 12 Months From Gold's Surge.

Could you use an extra $600 - or more - each month?

If so, you’ll want to check out the details of an overlooked government-backed program in THIS REPORT.

It shows you why the government is set to distribute $457 million to a small group of recipients, how to get your name on the list and the exact deadline you must meet in order to qualify.

Comments

Check out our selection of daily Investment Research:

We Respect Your Privacy

---

What is Investment U?

Since 1999, Investment U has provided impartial, no-nonsense investment advice on how to build long-lasting wealth.

---

Recent Articles

Platinum Services

The Oxford Club is an exclusive, global network of investors, who collectively participate in the pursuit of prosperity and wealth. The Club is renowned for its market-beating, tried-and-true investment principles.

The White Cap Report exclusively identifies companies, White Caps, which - by being among the earliest to gain traction - have secured dominant positions within untapped, billion-dollar markets.

With an elite trading team at the helm, the Xcelerated Profits Report shows any investor how to "invest like a pro," using high-level, yet easy-to-execute strategies that "xcelerate" profits while minimizing risk.

---