The Warren Buffett Retirement Plan

Frankly, most individual investors — no matter how smart or dedicated —
never really figure out a winning system.

You see, the secret to
true wealth isn’t putting in more hours at work. Most of us won’t
inherit a fortune. And it’s certainly not buying a lottery ticket and
hoping like millions of others that yours is the one.

The path to
true wealth can be very simple: make wise investment decisions, based
on a sound investment strategy, with a defined purpose in mind.

You
probably already have a purpose in mind — nice vacation, new car, gift
for someone special, putting a child through college, buying a second
home, early retirement, any of those and more — and that’s great. It
gives you a goal. Now, you just need a strategy.

A Bold Prediction

On Monday, when it was apparent that we were in for a big day as futures went limit up in pre-market, I said I wanted to see a candlestick pattern called “three white soldiers.”  

 

Three white soldiers basically means three pretty good sized up days in a row. This pattern is considered very bullish, especially after a period of consolidation. And the reason it’s bullish is fairly easy to deduce. 

 

A period of consolidation for a stock means that not much is changing. The buyers and sellers are pretty much in agreement as to what it’s worth. And so the price doesn’t change much. 

How Much for the Island?

Investing in gold is often called a “fear trade.” In times of crisis, it’s believed that gold will hold its value, and even rise, while the value of paper currencies and other assets fall.  

 

If you bought SPDR Gold ETF (NYSE:GLD), which seeks to track the price of physical gold, 2 years ago, you’d be up around 36%.   

 

The S&P 500 is down around 15% during that time.   

 

You probably already know that gold hit a new all-time high yesterday at $1,200 an ounce. And even though other traditional measures of fear – like the volatility index (VIX), bonds and even stocks – didn’t move much today, the move in gold can’t be ignored.  

Financial Darwinism

As Germany voted to approve bailout money for Greece, German Left Party lawmaker Gesine Loetzsch was quoted as saying "Speculators are Taliban in pinstripes, and people in our country must be protected from these Taliban…”  

 

It’s scary to me that any political leader could voice such an inflammatory and downright naïve opinion.   

 

If a hitter in baseball can’t hit the high fastball, then that’s exactly what he will see until he makes an adjustment. When Yahoo! failed to take advantage of its early-mover status on the Internet to implement a viable paid advertising model, it opened the door to Google.   

Fighting With Bears

I have to hand
it
TradeMaster Daily Stock Alerts’ Jason Cimpl. Yesterday, his morning
alert to
his traders was titled "The Biggest Story You Didn’t Read Yesterday".

And I’ll admit, I
missed
this story. But Jason, ever on the lookout for events that can lead to
solid
profits for his readers, was all over it.

Of course the
biggest story
yesterday, which was the failed auction in China,
received no coverage from the U.S.
media. China’s
finance ministry could not come up with enough bids in yesterday’s $4
billion
1-year auction. Over the past year there has been much debate as to
whether or
not China’s
yuan is undervalued. Speculators have slowly priced in a currency
adjustment,
but yesterday’s auction could indicate that the adjustment will happen
this year.

The PBC has
gradually raised
reserve requirements on Chinese banks for the past year and it is widely
expected that the bank will raise interest rates for the first time in
three
years this quarter. In that environment banks favor long-term debt,
which typically
have higher yields, but the notion that a 1-year auction did not receive
enough
bids is bizarre.

The Cheapest Stock Market in 20 Years

I don’t have a
problem with
investors who are bearish on the stock market and the U.S. economy.
After all, official unemployment is near 10%. U6 unemployment, which
includes
those who are underemployed or have simply given up looking for work, is
significantly higher.

The housing
market is likely
to only gradually improve over the next couple of years. There’s record
government debt here in the U.S.
and in many other countries.

But the bears
need to take
another look before they add high stock valuations to the laundry list
of
downside catalysts. Because the numbers say stocks are as cheap as
they’ve been
since 1990.

Sure, it’s
easy to look at the 79% move by the S&P 500 and think stocks must be
expensive.

But so far, 1st
Quarter
earnings have beaten estimates by an average of 22%, according to
Bloomberg.
80% of reporting companies have beaten expectations.

Analysts have
raised forward
earnings estimates for S&P 500 companies by 9.3% in April. The index
has
responded with a 3% move in April.

Is Your Portfolio Ready?

If
you’ve
been looking for a dip to buy, your opportunity may be coming soon.

Stocks
got
whacked yesterday, and the S&P 500 dropped below an important
support point
at 1,188. Aside from the past few weeks, that support level hasn’t come
into
play since September 2008, when the stock market was crashing. Before
that,
you’d have to go back to the October 2005 lows to find when 1,188 was in
play. 

There
were
several catalysts for yesterday’s drop. Debt problems with Greece and
Portugal are weighing on investors.
And Goldman Sachs testimony before Congress didn’t help either.

It’s
been
revealed that Deutsche Bank (NYSE:DB) has been informed by the SEC that
it,
too, is being investigated for mortgage-related fraud. It appears that
no
charges are pending at this time, but this gives investors another thing
to
worry about.

The Virtuous Cycle

In a recent survey by the National Association of Business Economics, 70% of economists said they believe the U.S. economy will grow by more than 2%. Just three months ago, only 61% of surveyed economists had such bullish expectations.   

 

And it gets better. 24% of surveyed economists believe 3% growth is coming, up from just 14% January.   

 

The details of the survey also show that employment is improving in the hardest-hit sectors: real estate, finance and manufacturing. And salaries are also on the rise.   

Is the Market Bulletproof?

If the stock market has you scratching your head, don’t worry. You’re not alone. 

 

I’ve been half-jokingly calling the stock market “bulletproof” for the last couple of weeks. And it’s because stock prices just keep marching higher. It’s like there’s no bad news that could possibly bring it down.   

 

Last week, we had a volcano eruption that grounded European flights and cost those airlines at least $2 billion. Then Goldman Sachs was accused of fraud by the SEC, which makes a financial reform bill that could affect the entire banking industry’s profits, and the net result for stock was a one-day decline.   

Designed to Fail

I’m sure by now you’ve heard that Goldman Sachs (NYSE:GS) has been indicted for fraud. Goldman is accused of creating securities that were designed to fail, so it and its hedge fund cronies could make billions in profits.   

 

Case in point: Abacus 2007-AC1. “Abacus” was a 23-part series of “synthetic collateralized debt obligations” that Goldman Sachs constructed and sold to supposedly sophisticated investors.   

 

According to Bloomberg, a “synthetic collateralized debt obligations” was a mixture of “…credit- default swaps (CDO), used to transfer the risk of losses on debt, and securitization, used to slice the risk in a pool of assets into various new securities.”