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How to Earn 995% in Four Years from "Ick" InvestingBy
Friday, September 10, 2010
Michael Burry made 489% gains from "ick" investing.
My subscribers made 995% from "ick" investing.
If you want to buy stocks that can make these kinds of returns, try "ick" investing yourself. Ick investing, according to Burry, is "taking a special analytical interest in stocks that inspire a first reaction of ick."
Here's an interesting example of "ick" investing from the excellent book The Big Short...
"[Owning shares of] Avant still makes me feel like the village slut," Michael Burry wrote to management back in August of 2002. The company had been accused of stealing a competitor's software code and the executives were headed to jail.
"No matter how well my needs are met," Burry wrote, "I doubt I'll ever brag about it. The "creep" factor is off the charts. I half think that if I pushed Avant too hard I'd end up being terrorized by the Chinese mafia."
Burry bought shares of Avant down to $2 a share. Four months after he wrote that e-mail to management, the company got taken over for $22 a share. "That was a classic Mike Burry trade," one of his investors said.
Back in 2002, my subscribers went "ick," too... I started recommending gold.
They cancelled their subscriptions. They said I'd lost my mind. They said gold had done nothing but lose money since 1980... and they were right, it had done nothing.
Even my father, who bought nearly all of my recommendations, said he wouldn't buy gold. That's when I knew gold was the ultimate "ick" trade – when my dear ol' Dad said "no way."
But what's happened to gold since 2002? It's up from about $300 to about $1,200 per ounce, hundreds of percent. And one gold stock I recommended – Seabridge Gold – made subscribers 995% gains in four years.
What's the "ick" trade today? That's what you need to look for.
Bloomberg interviewed Burry this week. He talked about three ideas...
"I believe that agriculture land – productive agricultural land with water on site – will be very valuable in the future," he said. "I've put a good amount of money into that."
He also likes smaller technology companies. I've written about how cheap the larger tech stocks are in recent issues of DailyWealth.
Lastly, a bit surprisingly, he likes gold...
Though gold is up hundreds of percent and it is getting popular, Burry sees it as the anti-Federal Reserve trade...
"The Federal Reserve, in my view, hadn't seen this [crisis] coming and in some ways, possibly contributed to the crisis," he said. "Now, [thanks to new banking laws] Bernanke is the most powerful Fed chairman in history. I'm not sure that's the right response. The result tends to tell me they're not getting it right."
Gold no longer feels like the "ick" trade to me... I never thought I'd see the day where gold quotes are on CNBC, gold is on the main Yahoo Finance page, and every other ad on talk radio is for gold.
But Burry made 489% after fees for investors in his hedge fund from 2002 to 2008. And today, he's buying farmland, small tech stocks, and gold.
Burry's secret to finding triple-digit winners is to look for the "ick." You should try doing the same...
Good investing,
Steve
Further Reading:
Here's another "ick" investment to consider: housing. Right now, because everybody hates the very thought of residential real estate, "you have the opportunity to pick up a home incredibly cheap... way below market prices." Learn more here: How to Get a 20% Discount on a Florida Mansion.
Market NotesHOW TO LOSE MONEY IN COMMODITIES We had trouble deciding on a headline for today's note. Two came to mind: "How to Lose Money in Commodities" and "World's Worst ETF."
Both describe the wretched performance of UNG, the popular natural gas fund. Investment funds like UNG have enjoyed a big surge in popularity because they give the investor a "one click" way to own baskets of stocks or commodities. However, some commodity funds are structured so they must continuously enter the futures market in order to maintain positions. This process often results in losses.
As you can see from the performance chart below, natural gas (black line) has gained around 20% from levels of one year ago. Hamstrung by its futures strategy, UNG (blue line) has actually lost investors 38% of their money during the same time! Only Wall Street could build a vehicle that allows it to collect fees while investors lose money on an asset rising in price.
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