If You Knew What Warren Buffett Knows…

by Alexander Green, Chief Investment Strategist
Monday, March 14, 2011: Issue #1468

My publisher recently forwarded me a note from an Investment U reader…

“You guys are recommending a 5% gold allocation in your model portfolio. That’s not nearly enough. I currently have an 80% gold allocation. Given the sorry state of the world, I’ll bet I’m going to make a lot more money than you will in stocks.”

I’m tempted to take that bet.

Sure, gold is up five-fold over the last decade and three-fold over the last five years. But that tells you nothing about where gold will be a year from now, or a month from now.

True, gold may go higher. Perhaps a lot higher. But would I bet 80% of my portfolio on it?

Not a chance. This investor – who clearly lacks experience more than confidence – may be right about the near-term direction of gold. But he’s taking a boatload of risk.

More importantly, he’s making a fundamental investing mistake…

Successful Investing Comes Down to Two Choices

When it comes to the financial markets, no one knows for certain what the future holds. That means every investor faces a stark choice.

  • Either: Run your portfolio by making a series of guesses about what lies ahead for the economy and the stock market, jumping in and out of stocks, or bonds, or gold, or sector funds.
  • Or: Invest according to proven, time-tested principles.

It amazes me just how many investors opt for the former, following some dubious analysis or making outlandish guesses. It’s even more surprising when you consider the stakes.

Protect and enhance your investment capital over time and you can live a life with all kinds of choices, plenty of financial security and the peace of mind that goes with it.

On the other hand, if you gamble with your savings, you might find that not only have your savings vanished but, more importantly, you no longer have enough time to make up for your mistakes.

People who grossly mismanage their portfolios almost always make the same mistake. They forget to ask that one basic question: What if I’m wrong?

A Powerful Statement From the World’s Greatest Investor

Given recent events, I understand why there’s a lot of skepticism about the outlook for stocks. The media harps on unrest in the Middle East, the spike in oil prices, the real estate slump, high unemployment and unwieldy federal deficits.

But they spend much less time on rock-bottom interest rates, low inflation, an improving economy and record corporate profits.

Listen to different sources and you can come up with completely different conclusions about the future. But here’s someone worth hearing:

Warren Buffett – the world’s greatest investor – recently told CNBC: “I’m 100% enormously optimistic about the future for this country. There’s no way you can bet against America and win… We’ve unleashed human potential and will continue to do so. Twenty years from now, your kids and grandchildren will live far better than you live.”

Most Americans don’t agree with this. Some find it completely unbelievable. That’s why The Oxford Club has put together a special report explaining why America’s best days are still ahead – and inviting you to take full advantage of a more optimistic investment outlook.

Good investing,

Alexander Green

Publisher’s Note: There was a problem with the data featured in Friday’s Investment U article, “Electric Vehicles: Green Power or Just Adding to the Pollution Problem.”

The data came from the North American Electric Reliability Corporation and indicated where power for electric vehicles would likely come from in the future, once the electric vehicle fleet has matured. We wrongly implied that the data referred to the current power grids of various U.S. regions. We regret the error and thank our readers for helping to point it out. We have corrected the article.

~ Jay Livingston, Publisher, Investment U