The following is an excerpt from our most recent Cigar Butts & Moats newsletter.
One of the primary themes of our articles over the last few months has been the potential of a major market top forming. We now have what I can only call “numerous bells” ringing.
First and foremost, I want to alert you to a disturbing trend in stock mania. That trend pertains to money inflows to stock mutual funds.
One of the best means of gauging investor sentiment for individual investors pertains to how they move their money in and out of mutual funds.
For example, from 2007 until the end of 2012, investors pulled over $405 billion out of stock based mutual funds. Over $90 billion of this was pulled in 2012 alone: the largest withdrawal since 2008.
In contrast, over the same time period, investors put over $1.14 trillion into bond funds. They brought in $317 billion in 2012: again, this was the most since 2008.
This marks quite a reversal of asset class fund flows: before 2008, stock funds usually took in $2 for every $1 investors allocated to bond funds.
However, this trend reversed back to normal in 2013. The Fed finally succeeded in inducing investors to move into stocks again. And they have done so in a big way. Thus far in 2013, investors have put $277 billion into stock mutual funds.
This is the single largest allocation of investor capital to stock based mutual funds since 2000: at the height of the Tech bubble. That year, investors put $324 billion into stocks. We might actually match that inflow this year as we still have two months left in 2013.
Indeed, investors are reaching a type of mania for stocks. They put $45.5 billion into stock based mutual funds in the first five weeks of October. If they maintain even half of that pace ($22.75 billion) for November and December, we’ll virtually tie the all-time record for stock fund inflows in a single year.
That record, again, occurred in 2000. At that time the NASDAQ had just staged a massive bubble rally.
What followed was one of the worst market collapses of all time:
However, this is not to say that there are not tremendous opportunities for stock pickers in this environment.
Indeed, recently, subscribers of our value stock picking newsletter Cigar Butts & Moats locked in a 28% gain on our latest stock pick in less than one month.
We did this by buying a deeply undervalued business. Based on its market valuation, this company could easily take itself private, using the cash generated from operations to pay the loan required to buyback all of its shares on the open market.
In fact, this business was so cheap that it could do this even if its earnings fell in HALF.
That’s one heck of a margin of safety. We bought on October 3 2013. And we closed out on October 23 2013 for a 28% gain.
Over the same time period, the S&P 500 rose just 4%.
This is how to make a killing in the market today: by focusing on value stock picking. It’s the very reason we launched Cigar Butts & Moats.
The price of an annual subscription to Cigar Butts & Moats is just $79.99.
For that price you get:
- 12 monthly issues of Cigar Butts & Moats
- Our proprietary deep value Investment Special Report How to Make a Fortune With Value Investing (a $199 value) which outlines specifically how Warren Buffett made his fortune investing in stocks.
- All of our other Special Investment Reports outlining special investment opportunities.
- Real time investment updates as needed (like the one that told investors to lock in a 28% gain).
All of this for just $79.99.
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Phoenix Capital Research