Chris Foster’s Secret to Making Real Money

When I first started writing an investment letter with paid subscribers over a decade ago, I’d call Chris Foster a few times a week.

Whenever I’d come up with a creative investment idea, Chris was the first guy I called to punch holes in it. If the idea made it past Chris, I knew it was good.

Back then, Chris worked at a firm that I respected more than any other... Friedberg Mercantile Group in Canada. As an example of their formidable trading skills, at that time, the 10-year track record on Friedberg’s currency hedge fund was something like 50%+ a year.

To this day, I still follow the founder of the Friedberg Group, Albert Friedberg. It’s really paid off.

In my advisory Sjuggerud Confidential, I recommended two tiny gold stocks that Friedberg was heavily involved with over the last year, Arizona Star and Seabridge Gold. We’ve already sold Arizona Star with something like 200% profits and we’re up about 350% on Seabridge... and still holding. Not too shabby.

These profits are not surprising... Chris and the guys at Friedberg always seemed to be about well ahead of everyone else. It seemed they knew what was going to happen next in the markets... and they knew exactly how they’d trade it.

Chris let me in on his own secret. He told me:

“Steve, I didn’t start making big money in my trades until I finally forgot about the fundamentals completely.”

I couldn’t believe it. Here was the guy who knew “the fundamentals” better than anyone I knew... he could tell you when the Argentine peso was going to crash and why, and he’d already have a short position through some sort of derivative. How could a guy like that abandon the fundamentals for his trades? Here’s what he told me:

“Steve, as a trader with my time frame [less than a year], what matters is sentiment. That’s it. When I see everyone is bearish, and the market starts ticking up, I’m getting in. And vice versa. It doesn’t matter if it’s stocks or pork belly futures.”

Before this realization, fundamental information like P/E ratios and commodity inventories just got in the way - and caused Chris to miss some good trades. The current conditions in the stock market are a good example of how “the old Chris” would have missed a trade.

Stocks are definitely not cheap right now, based on “the fundamentals.” The old Chris never would have bought stocks now, because, even though stocks just hit a bearish extreme in sentiment last week, they're not cheap.

But cheap is irrelevant in the short run. The fundamentals are irrelevant in the short run. That was Chris’s message to me. I listened.

Chris Foster doesn’t have exclusive rights to this message... Warren Buffett, the legendary value investor, even says that value is irrelevant in the short term, in his famous quote: “In the short run stock markets are voting machines; in the long run they're weighing machines.”

Stocks are a popularity contest in the short run. In the long run, value matters. Point taken.

This point sure has made me a lot of money. And, as you read in yesterday’sDailyWealth, it will likely make readers of my newsletter True Wealth, a lot of money also... Stocks just hit an extreme in pessimism last week. It’s time to buy for a short-term trade (3-6 months), even though stocks aren’t cheap. We’re buying riskier stocks in the newsletter, for the first time since September of 2004.

When opportunity arrives, you’ve got to take advantage of it. But you’ve got to learn to recognize it first, before you can take advantage of it.

Thanks Chris, for teaching me to recognize this trade... to recognize that the fundamentals are irrelevant in the short run. If I’d heard it from anyone else but you, I wouldn’t have believed it.

You can’t get ‘em right every time, as sentiment is finicky, and difficult to size up. And all traders go through streaks.

But as folks who’ve read True Wealth for many years can attest, we make good money, year in, and year out.

Chris Foster’s secret is one of the reasons why.

Good investing,

Steve