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How to Make Hundreds of Percent in the World's Cheapest Stock MarketBy
Tuesday, December 9, 2014
How do you make hundreds-of-percent profits?
What's the formula? What's the secret?
There's not an exact blueprint for you to follow... But the simplest thing you need to do is this...
You have to step up and buy what nobody else is willing to buy.
"Buy when there's blood in the streets," British financier N.M. Rothschild famously said two centuries ago – and he had it right.
Right now, there's blood in the streets – metaphorically, at least – in Russia...
The price of oil (a main source of Russia's revenue) has crashed. International sanctions against Russia due to the conflict with Ukraine are really hurting. Times are getting a bit desperate.
All of this has made Russia the world's cheapest stock market – by far. It's currently trading at a price-to-earnings (P/E) ratio of 4 – about as cheap as valuations ever get.
For your best chance to make hundreds of percent in a stock market, you need to start from "blood in the streets" valuations like we're seeing in Russia today.
If Russia's stock market soars threefold, the P/E of the market would still be cheap by historical standards.
I'm confident that I'll make a triple-digit return in Russian stocks someday soon.
But I'm not buying Russia today.
Why not?
You need a bit more than just blood in the streets...
I look for three things when I invest. Ideally I want to buy an investment that is:
1) cheap,
2) hated, and
3) in the start of an uptrend
Today, Russia meets only one out of those three things. (It's cheap.)
You might think Russia is hated as well... but it's not, from an investment standpoint...
Surprisingly, investors have not shied away from Russia. American investors, for example, keep buying more and more Russian shares, even as they keep falling.
The chart below shows the main Russian stock fund RSX. As you can see, the share price is going down. But the shares outstanding of RSX are going up.
 I don't think Russian stocks will bottom until Americans stop buying shares in Russia. It might sound bizarre, but I believe it: Russia's stock market won't bottom out until Americans (and foreigners in general) give up on Russian stocks. There's another stage that Russian stocks need to hit before the bottom is officially in:
Russia needs to leave the headlines. Russian stocks won't bottom until that happens.
There is a stage that's worse than the "hated" stage – and that's the "apathy" stage.
I remember the Asian financial crisis in 1997-1998. Asian countries were falling like dominos in slow motion – at a rate of about one per month. Thailand, Malaysia, Indonesia, etc., just kept falling. The news was horrible – and front page – for months.
These markets didn't bottom until they reached the crazy point where there was so much bad news, so consistently, that the bad news was no longer newsworthy anymore.
Asia eventually left the headlines. And that's when the magic finally happened...
Indonesia – for example – fell more than 90% peak to trough in 1997-1998. And then – after everyone forgot about it – it soared more than 400% in less than 12 months.
Russia is cheap today. But I'm not buying. My reasons are simple...
Even though Russia seems hated, by my guesses, it's not hated enough yet. Americans are still buying... It's still in the news. And Russian stocks are still in freefall – there's no legitimate uptrend yet.
So right now, Russia has only one of my three criteria going for it... It's cheap. That's it.
Someday soon, we can make triple-digit profits (possibly even hundreds-of-percent profits) from Russia. But I've lived and invested through enough crises (like Asia in 1997-1998) to see the usual script playing out here...
It's not hated enough... yet, and there's no uptrend... yet.
So even though it's cheap, it's not quite time to buy Russia.
Good investing,
Steve
Further Reading:
If you're looking to put new money to work today, consider Steve's latest trades on China:
Another Huge Opportunity in Chinese Stocks
"When China wants its stock market to go up, it goes up... A lot." The World's Strongest Currency?
"The next time you want to diversify some of your money, consider putting some into China's currency..." Market NotesIT'S STILL A BEAR MARKET IN NATURAL RESOURCES Today's chart is a reminder... It's a bear market in natural resource stocks.
Regular readers know we monitor the natural resource sector for a simple reason: It's capable of huge booms and busts. Get into the booms early and avoid the busts, and you can make big money in natural resources.
One way to monitor this sector is through shares of the world's largest mining company, BHP Billiton (BBL). BHP is a huge producer of oil, coal, iron ore, copper, and uranium. As natural resources go, so goes BHP Billiton.
As you can see from the three-year chart below, it's not "going" for BHP right now. Due to falling prices of many resources, BHP shares just plunged to a new low. It's the lowest level for BHP shares in more than five years... which means it's still a brutal bear market for natural resources.
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