Multi Currency portfolios for 2006 are done.
Attached is the final update for our 2006 Multi Currency Sandwich portfolios.
All five portfolios made a nice return but Asia with 114% appreciation rose far more than expected.
|The Final Performances||Projections Made in 2005|
|US Dollar Long||9.04%||18.35%|
|US Dollar Short||10.43%||15.02%|
|US Dollar Hedge||11.46%||17.34%|
|Emerging Market||42.93%||No Prediction Made|
|Asia Emerging Market||114.16%||No Prediction Made|
This is an educational service and so it will do us well to look back at the original ideas behind these portfolios. One of the three most important lessons gained in studying these investments this year is that belief in an idea is vital.
You can see our introductions (made last year) of the five portfolios at:
Emerging Markets http://www.spottingtrends.com/currency/currency_trends_8.htm
We can see why belief in an idea is vital by looking at what happened to those who simply chased high returns.
The portfolios began October 21, 2005 and shot off like race horses bolting from the gate.
Four months later I wrote:
“After 20 weeks on March 5, 2006 these portfolios had risen as below:
Asian Portfolio +75.19%
Emerging Markets Portfolio +61.03
Dollar Long Portfolio + 11.60
Dollar Hedge Portfolio + 9.93%
Dollar Short Portfolio +7.22% “
I also added: “These results are especially pleasing since there have been several articles in newspapers that warn that Borrow Low systems of enhancing profits through leverage may be at an end due to sharp shifts in several currency parities”.
The warnings were true. Beginning in March 2006 the second worst emerging market plunge of the decade began
In July 2006, a portfolio update said: “The last month has seen a blood bath in emerging markets and currencies”.
The Asian portfolio had dropped to 30.28%. The Emerging Market Portfolio was down to + 4.68%
The Dollar Portfolios were all in losing territory. Dollar long was down -16.7%, Dollar Short, -14.6% and Dollar Hedge -14.5%.
If an investor attracted by high returns had jumped into the Asian portfolio as an example, here is what happened to that investment from March through July, 2006.
If $300,000 was invested in March ($100,000 invested and $200,000 borrowed) the portfolio was down 44.91%. With the tow times leverage, the investor lost $134,710. Those who jumped in at the early top lost everything plus 34.71% more. This is why we remember again and again do not invest more than we can afford to lose.
However, if the investor believed in the idea and could afford to hang on, or had a money management system in place to cut losses and then reinvest when the idea turned around, they were well rewarded.
The Asian portfolio rose 83.88% from July through October, 2006. In three months, the $300,000 portfolio gained $251,640, a 151.64% profit on their $100,000 base investment in three months!
Let’s review what could have happened with the Asian portfolio over the year. All the other portfolios offered the same potential in varied degrees.
Investors who invested $100,000, borrowed $200,000 and held on through thick and thin, made 114.16%
On the $100,000 actually invested, they earned $114,160 in one year.
Investors, caught in greed, who jumped in March and exited in fear in July lost the whole $100,000 invested. They could have lost $34,710 more. These losses all took place quickly, in just five months. Had they held their sandwich at Jyske Bank the bank would have closed their position before it reached a negative position.
Had a really wise investor timed their investment right and invested $100,000 in July 2006 they would have earned
$151,640 on the $100,000 invested) in just three months.
Here are the three most important lessons this reminds us of this year:
#1: There are always things you cannot see. I believed the US dollar would fall. It did and a 10.00+% return on this bet was not bad. Yet the greenback did not fall much. The dollar short portfolio was not much better than dollar long.
#2: Belief in the idea is vital. Keep a good money management system. This year investors needed one or two approaches. They needed to invest in what they believed in (with a win or lose all philosophy) and hang on. Or they needed a money management system where they took profits when losses began and then reinvested.
Investors who started the portfolios and then bolted when profits fell, lost great opportunity. Investors who jumped in late through greed rather than belief may have lost all. This leads us to the third valuable lesson.
#3: Do not invest more than you can afford to lose! In an utterly brilliant year (when viewed from the annual perspective) the seeds for incredible performance and total loss were planted.
Next update will introduce the five new portfolios we’ll study in 2007. In addition I’ll be sending you a comprehensive report about these portfolios and what could happen in the year ahead.
For many subscribers it is time to renew. We are raising the annual subscription from $99 to $149 but will freeze the $99 renewal for existing subscribers till the end of the year. You can pay up to five years at this price.
To renew simply go to https://www.garyascott.com/catalog/bl/
Under “quantity” type in the number of years you wish to renew, one through five. Then click on “check out:.
In the check out section under “comments and special delivery instructions” type “renewal”.
Until next update, good global investing!