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The Dumbest Investment Thinking Ever – Are You Guilty?

By Dr. Steve Sjuggerud
Friday, December 12, 2014

"It's gone up Steve, so it can't go up..."
This is the dumbest investment thinking, ever. Yet I hear it all the time.
Right now, I'm hearing it about China. "China is up Steve, so it can't go up."
Specifically, my True Wealth subscribers are up 30% in three months in China. (I wrote a full issue of my True Wealth newsletter about buying Chinese stocks three months ago and I recommended buying ASHR – a China-stock fund.)
Now people are grumbling to me... "Steve, it can't go up any more."
If you think like that, my friend, I'm sorry... but you'll never grow wealthy through investing.
Look, my True Wealth subscribers are sitting on a 390% gain in a health care fund that we bought in 2011...
How do you make 390%?
There's one thing you have to do to make a gain like that... And that is you must NOT sell when you are up 10%, 20%, or 30%. Unfortunately, that is what most people do.
You have to give yourself the chance to have a big winner.
You only get so many big winners in your investing lifetime... But if you sell early, then you have cheated yourself.
Right now, my subscribers are sitting on eight – yes, eight – triple-digit winners. And that's after selling out of a few triple-digit winners a month ago.
If you want triple-digit winners, you have to be willing to let your investment go up!
You can't worry so much about where it has been so far... You have to think about where it's going...
Take my current China trade for example... My subscribers are up 30% in China in the last three months.
Let's consider what has happened the last few times that China went up 30% within six months.
Something extraordinary has happened...
Over the past dozen years, when China has soared by 30% or more within six months, it averaged 123% MORE gains over the next year.
You can see it in the chart below. The green circles show six-month periods where Chinese stocks went up by 30%. And you can see the massive gains that followed.

I can't guarantee that Chinese stocks can or will go up from here.
But I can tell you that the argument that I hear nearly every day... that "stocks can't go up any more, because they've gone up" is dumb. It is some of the dumbest thinking in investing.
Chinese stocks are not expensive yet. Most international investors have not bought yet, as most are incredibly skeptical of China. These are indicators to me that the top is not in yet in China...
You are welcome to NOT buy China for a lot of reasons... There are plenty to choose from.
But please, don't use the excuse that "it has gone up, so it can't go up." That is shallow and dumb thinking not backed up by anything. That thinking is founded in emotion, and not in the hard facts.
You will hear this for the rest of your life...
"It has gone up, therefore it can't go up."
"Gotta take profits while you've got 'em."
Don't listen to it. It is not right. Don't fall for it. It is the dumbest thinking in investing.
If you want to make 390% profits in something, then you can't sell early. The reason the typical investor sells early is because "it has gone up." Of course, the typical investor underperforms the market.
I urge you... don't be typical. Remember this letter.
And please remember this: Don't sell just because something has "gone up."
Good investing,

Further Reading:

Learn two more of Steve's favorite ways to "buy China," right here:
When it comes to China funds that invest in the local Chinese stock market, bigger is not only NOT better... in this case, bigger is WORSE.
China just cut interest rates. And based on history, these companies have returned an average of 26% over the next year when that happens.

Market Notes


What happens when you combine falling oil prices and high debt levels?
You get ugly results... and today's chart.
Over the past six months, crude oil has fallen 38.4%. This has produced a 20% decline in the price of well-run oil companies with modest debt like EOG Resources. But for oil firms who have taken on a lot of debt, the declines have been far, far worse...
For example, Goodrich Petroleum is a small-cap oil producer with one of the highest debt-to-asset loads in the industry. The combination of "falling oil, high debt" has obliterated Goodrich shares. They've fallen from $25 per share to less than $5 (more than 80%) in just a few months. It's a lesson worth remembering for resource investors.

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