Paul Ferraresi

Jean Chatzky, personal money expert, was interviewed in the June 2010 issue of Success Magazine. She described the “Four Habits of the Wealthy”:

1. Work hard.

The wealthy work harder –and sleep less – than other people. They are more likely to mix work with their own downtime, sacrificing personal time for professional success. But because they tend to be passionate about what they do, it’s less likely that they see it as a chore.

2. Save habitually.

Wealthy people certainly have the funds to be crazy spenders, but most are not. In fact, some seven out of 10 say that saving more money has been an absolutely essential financial goal as an adult. They typically pay off their full credit card balance each month.

3. Invest soundly and aggressively.

The wealthy are more likely to invest in stocks and mutual funds. They understand the need to take risks in the market in order to make their money work as hard as they do. They are also more likely to invest in real estate (above and beyond owning their own homes).

4. Give back.

The wealthy are grateful, and they show it by giving back to their communities, to organizations they believe in and to people they care about.

In my 40 years of working with individuals in personal finance, I could not agree with these habits more.

“A man is rich according to what he is, not according to what he has.”

The number of U.S and European middle class consumers are falling as both begin to age. This group will fall to 558 million by 2025. Look at Asia as the upcoming area, as middle class consumers will grow to 3.6 billion by 2025.

Read and study on these areas before making your investments. Here are a couple ofpublications to start your investment research. Asia will be a fine long term trend for your portfolios.

Sydney Morning Herald:
www.smh.com.au

Dig Media :
www.digmediasolutions.com

Franklin Templeton:
www.franklintempleton.com

Financial Times:
www.ft.com/uk/global.economy

South China Morning Post:
www.scmp.com

See Mark Mobius blog:
http://mobius.blog.franklintempleton.com

See Jim Rogers blog:
http://jimrogers-investments.blogspot.com

“He who is waiting for something to turn up might start with his own shirtsleeves.”

I read a recent article by Jason Zweig, a fantastic financial writer. He stated “since the beginning of this year (2011), investors have added roughly $32 billion to mutual funds and exchange traded funds that holds U.S. stocks. That uptick, amounting to just 0.7% of total assets, is no stampede. But it is enough to raise questions about who is doing this new buying”.

Funny, it seems many of the people who did NOT want any part of stocks in 2008, when the Dow was at 7000, 8000, or 9000, are now deciding that Dow 12000 is the correct number to come back in. Many sold at Dow 7000 only to buy at Dow 12000. Ah, yes, emotion over logic. Buy high and sell low. It never changes. The stock market will always go through periods of depression and euphoria.

The unfortunate aspect is that the swings of fear and greed and the timing of downturns and rallies are impossible to predict.

On March 16th, 2009, Business Week’s cover story asked…”When will the bull be back? ”. The story explained that most signs point to more stock market pain. The S&P 500 hit bottom a week earlier at 667 on March 9th, 2009. Almost 2 years to the day the S&P 500 has doubled to 1350.

In the Business Week article, it said the Dow, which was at 7000, would bounce around over the next 2 years and it would be 6 years after that (a total of 8 years, 2017) before it reached 14000. The Dow almost reached 14000 within 2 years.

My point is that I have always been a contrarian my whole life and it has done wonders for me and my clients. When the “media” are promoting doom and gloom or this train will never stop…be sensible. Take a step back; evaluate the facts, not the emotion. See the herd instinct in action and stay away from the herd. Over time, equities beat out every investment class. Believe in the great companies of America and the ingenuity of Americans.

You know, when I was in college, (yes, there were colleges way back then), we did a study, over a 30 year period of “Time Magazine” cover stories and how it related to investment returns. If you did the complete opposite of what “Time” covers stated or implied you would have been wealthier beyond your wildest dreams. “Time” and other non financial publications look backward and always get it wrong. So, do not follow the crowd. The crowd left the stock market in 2008 and 2009, selling at huge losses at the bottom. Now, the crowd is buying back in at the top, before the next correction.

The recent run up in emerging stock markets appears to continue in 2011. This is due, in part, as investors feel these economies will grow faster than their larger counterparts.

Another strong reason for the growth is that their stock buying population is growing faster. A great article in Barron’s on November 22nd, 2010, by Kopin Tan cited the following:

“Over the long run, certain emerging markets might be winners simply because their stock-buying population is swelling faster. A key metric to watch is a country’s proportion of people in their 40s to those in their 20s, which Ajay Kapur, Deutsche Bank’s Hong Kong-based strategist, dubs the Demi-Ashton ratio-after the 2005 pairing of the forty-something actress to her then-27-year-old sitcom star husband.

Think about it: In our 20s, we spend what little money we have on necessities like rent, tuition loans, bourbon and Eames chairs. Only when we grow older, wiser and wealthier-hopefully by the time we hit 40-do we allocate serious money to stocks and plan for retirement. No surprise then that as baby boomers came of age, the Demi-Ashton ratio in the U.S. shrank from 102% to 56% between 1960 and 1980-a nifty time for rock ‘n roll but drab decades for the stock market. By 2000, however, this ratio would rebound to 109% in a heady ascent that paralleled stocks’ boom.

While our Demi-Ashton ratio is projected to shrink slightly over the next two decades, the 40s-20s horde will surge to many emerging economies-to 84%, from 63%, in India; to 105%, from 73%, in Brazil; to 166%, from 78%, in Poland, and to 125%, from 99%, in China. Of course, things like valuations, financial crises, reforms and busts matter, too, and will create variations from this theme, Kapur notes “but there is no escaping the power of demographics.” He reckons the Demi-Ashton ratio will rise the most over the next five to 10 years in Indonesia, India and the Philippines within Asia; and in Brazil, Mexico, Poland and Turkey elsewhere.”

Just remember back to Hula Hoop, Transitor radios, Mustang, personal computers, cell phones, etc. You have an opportunity of a lifetime. The old adage was watch the baby boomers as they set buying trends. Don’t you wish you could have been the first investor in all the above trends? Well, you can… The emerging markets are going to do a replay of what we experienced.

Ah…discipline or regret!

Watching the Dow Jones average approach a higher level, I smiled with peace within myself.

As I have instructed all my students, over the past 35 years, the markets go up and down daily, but, the long-term trend is always up. In fact, the stock market looks like a yo-yo going up and down in the hands of a man walking up steps. Hopefully, you learned from my teachings, and your own research, that equities will always beat out every other asset class over time. You, personally, can remember the Dow hitting 11,700+ in 2000. Then, the tech-wreck and 9/11 caused it to drop to 7,400. If you sold out at the bottom, you probably lost money. If you held on…then, no money was lost. You have experienced and learned a valuable lesson. Buy and hold will always win out (unless there is a worldwide thermo nuclear holocaust – if so, the world is over and who cares). Over these past years, the “drive-by media” simply dumps bad news on you. Even with “all” the bad news in the world, the markets keep going up. (You know, it has been the same bad news reported for the past 200 years.

You know, it is funny, the Investment Company Institute, that tracks individual investor behavior, noted the following: In 1982, when the Dow was at 762, money was flowing out of the stock market. In 1987, at 2,100-2,200, money was flowing in. When the Dow dropped to 1,700, money flowed out. In 1997-2000 money poured into the market during the tech bubble on the way up to 11,700. When the bubble burst and the Dow dropped to 7,400, guess what, money poured out.

From 2004-2007, money again poured into the market as it rose. In the 2008 stock market drop, trillions moved out of the market and into cash. March 9, 2009, the market hit the low point. One year later, the market was up over 65%. Now that the market is back to a level prior to the drop, money is coming back in…just about the time when a mild correction will take place. So, looking back at the recent drop, people poured money in at the top, took a 40-60% drop, sold out at a loss and, now after a huge gain, these same people are investing again near a top. I thought the rule was “buy low, sell high.” The masses are all doing the opposite of buying high and selling low.

Watch…once the “drive by media” notes a new record on the Dow, money will pour in. Enjoy the ride, stay on the course.