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The Hardest Trade Today

By Dr. Steve Sjuggerud
Monday, September 28, 2009

I hate to say it, but this year has been "easy."

The "hard trades" have fallen out of the sky and into my lap. When the bond market was at risk of imploding, True Wealth readers made the hard trade and got into risky bonds safely, trading a "junk bond" fund for a 52% profit. We bought stocks in March, when the market looked awful, and are up 40%. And this summer, when real estate was the "hard trade," we bought commercial real estate. We're up 37% and there's more to come.

While everyone was panicking and looking out for the Next Great Depression, we've probably had the best year in the history of True Wealth. But now that everything is up, what is the "hard trade"? Sometimes it's difficult to pinpoint...

Look, the stock market rose 50% in six months from its bottom in March. That was the best six-month rally in our lifetimes. What's the easy trade for everyone now? To sell! People LOVE to lock in small profits. But that's not how you make BIG money in your investments.

The hard trade right now is this: DON'T SELL. The harder trade is to add new positions. In True Wealth, we're taking the harder trade... We're adding a speculation: biotech. If you catch just one biotech bull market, you may never have to work again...

In the early 1990s, biotech stocks roared 1,347% (according to the Datastream Biotech Index). Every $100,000 invested turned into nearly $1.5 million. And since 1983, biotech stocks have launched into four separate triple-digit bull markets. The average bull market in biotech lasts about two and a half years... and the average gain is a stunning 565%.

So you can see why we want to catch the next bull market in biotech. Even better for us, we're far overdue for a real biotech stock boom. The Nasdaq Biotech Index is still nearly 50% below its highs a decade ago. The great thing is, while stock prices have gone down, the innovation has continued... and so have sales.

Biotech stock prices have stayed flat, but sales have been going up. So by definition, the price-to-sales ratio of biotech stocks has gone way down. We're seeing values today that we haven't seen since, well, the last 500%+ boom in biotech, from 1998 to 2000.

We're Seeing Biotech Prices We Haven't Seen 
Since the Last Huge Bull Market

So as measured by price to sales, biotech stocks are a bargain... they're as cheap as they've been in over a decade.

Also, in what boggles my mind, biotech stocks are completely ignored right now. I find this crazy. It's the exact opposite of a decade ago. Ten years ago, NOBODY wanted to hear about gold. I know that for a fact. And EVERYONE wanted the next great technology back then... 

Now, everyone wants gold... but who cares about biotech? 

Meanwhile, the major biotech index (the S&P Biotech Index) quietly broke above its February 2009 high to hit a new high for the year. Biotech is in a definite uptrend. 

The three criteria we look for in an investment are: 1) cheap, 2) hated or ignored, and 3) an uptrend. Biotech offers the rare combination of all three of those factors right now.

It's time to make the hard trade and buy. 

Good investing,


Market Notes

Cresud (CRESY)... Argentine land
Apple (AAPL)... iPods and computers
Google (GOOG)... search engine
Starbucks (SBUX)... expensive coffee
Nordstrom (JWN)... expensive clothing
Coach (COH)... expensive handbags
Bed Bath & Beyond (BBBY)... home furnishings
Macy's (M)... retail
Dillard's (DDS)... retail
Annaly Capital (NLY)... virtual bank
Hatteras Financial (HTS)... virtual bank
Capstead Mortgage (CMO)... virtual bank
Goldman Sachs (GS)... investment bank
CarMax (KMX)... used cars
3M (MMM)... manufacturing
Royal Caribbean (RCL)... cruise line
Rackspace Hosting (RAX)... website hosting
Visa (V)... as you can see from the rest of this list, money is a-flying! 


U.S. dollar... again
The "VIX"... investors have short memories

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