Whack! Aussie stocks are really taking it in the guts right now. The market lost $42 billion in value yesterday. In fact, the ASX hasn’t been much fun since it peaked in August.
You know the headline explanations already: weak banks and the US-versus-China spat. That doesn’t help us make money, though.
This market is neither too weak to short nor strong enough, for the moment, to break into fresh highs.
We’re going nowhere. The ASX/200 is now back to where it began in January.
I took a quick review of stock markets around the world.
No one else is having much fun. Shanghai, Germany, UK, Hong Kong, Japan…all down lately.
A change of tack is required right now.
I’m going to channel the spirit of Jim Rogers for today’s Profit Watch. It can only lead to one market…
The man who became a millionaire at 37
You should know old Jim. His hedge fund returned 4,200% in ten years from around 1970-1980.
Now there’s a man that found some great investments!
He didn’t achieve that kind of performance by sticking with one market.
Jim bought and sold currencies, commodities and stocks, long and short, all over the world.
That’s not so uncommon today, but the Quantum Fund, as his hedge fund was called, was one of the first to do this.
I’ve spoken to Jim in person several times over the years.
The Great Mining Collision
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His favourite mantra might sound familiar: ‘buy low and sell high’.
Easier said than done, of course.
I dug around Jim’s work quite a bit to see just how he went about this.
Jim didn’t just buy any old stock that was selling cheap. A lot of those stay like that forever.
Jim usually looked for two things back in his Quantum days…
One: Jim liked buying stocks on the verge of bankruptcy. He wanted a stock so cheap he basically couldn’t lose money.
Two: it needed an ‘exciting’ cause to get it firing again.
This strategy led Jim to US defence stocks in the 1970’s. The gains were in the thousands of percent.
The exciting cause was the huge US government military spending that came along.
Jim pulled a similar kind of move in 1998, when he started buying up commodities.
Natural resources were selling at incredibly cheap levels.
The exciting cause at the time?
The rise of China.
That’s all history now.
Where would a guy like Jim look today?
There’s only one market that fits this kind of bill.
Yep…the crypto market.
Two impressive long-term investors scooping up crypto
Cryptocurrencies weren’t around when Jim was a professional money manager.
But if you’re looking for a market in distress, crypto is the place to turn your eye.
A lot of tokens are down 80-90% in 2018.
The massive gains of 2016-2017 feel distant now.
Interest in cryptos has largely disappeared. The endless reporting of the latest blockchain developments has stalled. It’s all faded away.
Except, that is, the projects and teams that were there before.
You could think of crypto as having its 2009 moment.
The downturn has been so big that former traders and investors have walked away from the market. Retail interest has collapsed.
But the one advantage you have over last year is that values are much lower.
The upside, relative to your downside risk, is much better now.
Apparently I’m not alone in thinking this.
US$700 million at stake on this market
A report has come through that Yale University is invested in a US$400 million cryptocurrency fund.
This follows on from the news earlier in the year that esteemed tech investment group Andreessen Horowitz have launched a US$300 million crypto fund.
Neither Yale nor Andreessen Horowitz are going in for short-term moves. They’re long-term players.
The men and women behind Yale’s endowment fund have a very credible track record, I can add.
It’s returned just under 12% over twenty years.
Regardless, for our purposes, this shows that there are some smart players digging amongst the rubble right now, and accumulating the best projects.
Something else strikes a chord at the moment.
Bitcoin’s volatility is at a significant low. There’s a suggestion that this is the arrival of institutional capital coming from Asia.
However, if we’re following our ‘Jim Rogers’ script, we need the ‘exciting cause’ to spark Bitcoin’s next bull run.
Bitcoin sets the whole tone for the crypto market.
Two of my colleagues, James Altucher and Teeka Tiwari, think its going to come from the same thing.
That’s the arrival of a crypto Exchange Traded Fund (ETF) on the Nasdaq.
This will make it possible for people to get access to crypto through their stock broking accounts.
This could send a flood of money into the market.
I don’t doubt this.
Buying and storying crypto is a lot of hassle for new entrants.
The easier this becomes, the bigger the market can get.
Remember, the old Jim Rogers recipe is in place in the crypto market.
One: prices way, way down from their previous highs.
Two: an exciting cause ready to spark the next rally, and a wave of potential money to follow.