We live in a global economy and spend money around the world. Everyone today is a multi currency spender. We also live in a world where most governments believe in lots of spending financed by national debt. National debt can destroy or at least weaken a currency. We also live in times of huge demographic and industrial shifts. Developed economies face stiffer and increased competition from emerging economies. Trade balances as well as debt are shifting everywhere. The US and Japan were formerly great lenders are now huge borrowers. The US, once a great supplier to the world, now has huge and growing trade balances.
All of these factors mean that no one currency is totally trustworthy.
This means that as multi currency spenders, the only safe way to have financial stability is to be a multi currency investor as well.
I am about to send our multi currency subscribers the latest review of the five multi currency portfolio’s we developed with Jyske Bank and have tracked since November 1, 2006 (eight months and 10 days). They will see the performance is:
$100,000 invested Nov. 1, 2006 in the Green portfolio is now worth $301,148.
To make matters better the worst performing of the five portfolios we reviewed in that July article is up 38% in this same period. The other three portfolios are up 38%, 45% and 62% in this time period. Such high returns are possible when one uses intelligent leverage.
This makes a compelling investment story considering that an investor can create a portfolio like this at Jyske, one of the world’s safest banks.
Yet I would like to share a really important point about the loss potential of leverage as well.
Last year our portfolios had great success also. Our top portfolio (Asian Emerging Markets) rose 114.16% from November 2005 to November 2006.
Yet when we started our five portfolios in November, 2006, we reduced, rather than increased the leverage we used. This is because the 2006 emerging portfolios gave us great performance for the whole of the year, but they also had a severe dip in between.
Look at what this means so you can see both sides (the ups and downs) of leverage.
The 2006 Asian Emerging Portfolio began October 21, 2005 and shot off like race horses bolting from the gate.
Four months after it began, I wrote:
“After 20 weeks on March 5, 2006 the Asian Emerging Portfolio has risen +75.19%
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 Emerging Asian Portfolio had dropped from being up 75.19% to being up +30.28%, a loss of nearly 44.91% in four months.
If investors, attracted by high returns, had jumped into that portfolio in March 2006, they were down …badly. From March to July the portfolio was down 44.91%, but leverage made the loss much worse!
If $100,000 were invested in March 2006 and an additional $200,000 borrowed, the two times leverage meant that the investor lost $134,710. Those who jumped in at the early March top could have lost their entire investment, plus 34.71% more. This it is why it is important to know never to invest more than one can afford to lose.
If investors 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 Emerging Asian Portfolio rose 83.88% from July through October, 2006. In three months, the $300,000 ($100,000 invested and $200,000 borrowed) portfolio gained $251,640, a 151.64% profit on the $100,000 base investment…in just three months!
Review what could have happened with the Emerging Asian Portfolio in just one year.
Investors who invested $100,000, borrowed $200,000 and held on through thick and thin for a year made 114.16%. On the $100,000 actually invested, they earned $114,160 in one year and ended up with $214,160. Not bad!
Investors, caught in greed, who jumped in March 2006 and exited in fear in July of that year lost their entire $100,000 invested and could have lost $34,710 more! That’s bad.
These losses took place quickly, in just five months. Had the investors held their sandwich at Jyske Bank, the bank would have closed their position before it reached a negative position so their loss would have not been more than their original $100,000…probably even less. That’s still bad.
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. That’s really good!
Here are three important lessons:
#1: Belief in the idea is vital. Investors who believed in the idea and held on were well rewarded.
#2: Keep a good money management system. Investors who had a money management system, set stops and exited before the March collapse and reentered in July made a huge annual return and did the best of all (up to over 400% annual profit in a year).
#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 in blossom.
Multi-currency investing is vital in this day and age. There is no one currency that is totally trustworthy.
Multi-currency investing enhances safety. Leverage can make multicurrency investing even more profitable…yet every investor needs to question whether to use leverage or not.
If you do, be sure that the amount you borrow is in tune with your goals and circumstances. Do not get greedy! We have seen that leverage works both ways so be true to yourself and use your normal good sense and caution.
If you do plan to use leverage, the borrow low-deposit high strategy to leverage multi currency investing can strengthen your financial security and profit potential as well.
We update and analyze these five portfolios at our next two International Investing and Business Made EZ courses.
Join us September 14, 15, 16, 2007 in North Carolina, https://www.garyascott.com/nccourse
Or come to Ecuador November 9,10, 11. See https://www.garyascott.com/catalog/IBEZec/
You can learn why this performance has taken place in a sixteen page email report about how 13 economic forces now clash to shape investments markets ahead that show the rewards and the risks. The report also outlines the five new Multi-Currency Portfolios we are tracking in our Borrow Low-Deposit High Multi-Currency Sandwich Educational Service. Details are at https://www.garyascott.com/catalog/bldh
Until next message, good global investing!
We hope to serve you at one of our upcoming courses or correspondence courses.
Super Thinking + Spanish with Free Oct 1 – Mon. Andes Extension & Real Estate Tour.
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