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What the "Crisis and Collapse" Crowd Is Missing About America

By Dr. David Eifrig, editor, Retirement Millionaire
Saturday, September 3, 2011

Judging by my reader feedback and conversations with friends and family, the consensus among investors is clear...
 
People are terrified right now.
 
When the news is filled with upheaval... like the euro debt crisis, anarchy in London's streets, the downgrade of America's credit, and the stock market's manic correction... it's easy to be swept away by fear.
 
But if you've read DailyWealth for more than a month, you realize that investing during times of fear and panic is the way to huge investment returns... just ask the greatest investor of our time, Warren Buffett.
 
Periods of turmoil and uncertainty are routine throughout history. But rather than crawl into a bomb shelter with just cash, gold, and canned food, the smart bet has always been on the triumph of human potential. Buffett reminded me of that recently.
 
Since 1965, Buffett has regularly applied his techniques and strategies to create a compounded 20%-plus return for investors in his company, Berkshire Hathaway. Compare this with the S&P 500's average 9% return over that same period.
 
And every year, as chairman of the board, he pens a letter to shareholders as part of Berkshire's annual report. If you're looking for wisdom about investing, these letters are a great education.
 
Buffett has decades of experience with asset bubbles, recession cycles, business valuations, and making money... much more experience (and a heck of a lot more money) than the "gloom and doom" analysts that get so much attention these days. His last letter from February 26, 2011 delivers plenty of insight. After recently reading it again in a coffee shop in Minnetonka, Minnesota, I was struck by his wisdom.
 
One specific excerpt from his letter captures the current market environment...
 
Money will always flow toward opportunity, and there is an abundance of that in America... Commentators today often talk of 'great uncertainty.' But think back, for example, to December 6, 1941, October 18, 1987 and September 10, 2001. No matter how serene today may be, tomorrow is always uncertain.
 
Don't let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.
 
We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America's best days lie ahead.
 
Today, worry abounds. I hear it from my friends, family, and readers. But as Buffett reminds us, this is a great time to invest. I think the world's best days (not just America's) lie ahead.
 
If you have the capital, it's time to invest it in human potential... Put it to work in opportunities to make money created by rampant fear.
 
These opportunities include the cheap housing Steve Sjuggerud has been writing about... the exceptional "basic" dividend paying companies we've written about here, here, and here... and don't forget the "super" contrarian idea of owning U.S. municipal bonds.
 
The fear and volatility that is common in the marketplace will make most people avoid these assets. They'll create periodic "fire sales," allowing you to buy valuable assets for pennies on the dollar.
 
If you can step up to the plate and buy them – and bet on Buffett's theme of "better days ahead" – you'll set yourself up for extraordinary investment returns in the coming years.
 
Good investing,
 
Doc Eifrig




Further Reading:

Last month, Doc spent a week teaching DailyWealth readers how to generate safe, tax-free income, where to look for stocks with growing dividends, how to boost the income of super-safe stocks, and how to make money no matter what the market does.
 
But as Doc himself pointed out, sophisticated investors know focusing solely on these "rewards" of investing will not make an investment fortune. Great investors focus on risk. Read more here: The Best Insurance You Can Buy In Advance of a Crisis.

Market Notes


CHART OF THE WEEK: GOLD STOCKS ARE NEAR A BIG BREAKOUT LEVEL

After treading water for 10 months, gold stocks are close to a "breakout."
 
In the depths of the late-2008 credit crisis, we recommended gold stocks as one of the best "rebound trades" to play a market rally. Our expected rebound came... And gold stocks rallied 150% in two years.
 
But as you can see from this week's chart, the gold stock rally (as measured by the benchmark Gold Bugs Index) fizzled in 2011. Since hitting a high around 600 in late 2010, this index has traded in a volatile, sideways range. No real progress has been made.
 
Keep in mind... Gold production is often a crappy business that involves huge upfront costs, heavy regulation, environmental problems, and zero "branding power." But the price of gold itself has advanced 48% in the past 12 months. This price surge is a big tailwind that sends gold miner profits much higher, despite the poor business model... And the sector just broke out of the past year's trading range.

Stat of the week

4%


Annual U.S. inflation rate, according to MIT's "billion prices project," which attempts to provide a "real time" measure of inflation.

In The Daily Crux



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