That’s if you believe a Nobel economist, of course. His crude “experiment” was the start of “modern portfolio theory” decades ago. The downside, however, was that with a reduction of risk came a dampening of profits. So scratch that idea.

How about this? A startling study in the late 1970s showed that owning a portfolio of large U.S. companies with international divisions drops your risk 10% below a domestic stock portfolio. Much better. But that wasn’t the eye-popper…

The study also found that owning stocks in international companies cuts your risk in half…

Take that, “efficiency” theorists! Yet the stuffy professors still tried to refute these results. It was a losing battle, though, as more studies emerged, laden with more evidence that international stocks reduce risk.

But the most startling thing? The studies indicate that adding international stocks to your domestic portfolio may even increase your average profits.

But how do you buy stocks in foreign companies trading in London, Hong Kong, or São Paulo? By investing in ADRs… let me explain.

How to Go Overseas Without Even Getting On a Plane

Let’s say you want to buy shares of an English company, trading on the FTSE-100 index. You’d have to convert your cash to pounds, buy the stock, wait to sell it at a profit, then convert it all back to U.S. dollars.

If the greenback weakened, you’d make a profit on the stock but lose on the conversion!

In a word: Ugh.

This is why the vast majority of investors buy a managed international mutual fund. This allows the “experts” to run overseas with your bag of cash and make the investments for you.

But is this really smart?

As early as the 1960s, some economists confirmed that fund managers can’t forecast stock prices well enough to cover their own expenses, let alone make you a profit. In the end, all economists – regardless of their background – agreed that the performance of a managed mutual fund is worse than throwing darts at a list.

Here’s a better way…

Investing in ADRs: Harness JP Morgan’s Secret Weapon

In 1927, a chain of retail stores wanted to list on the NYSE.

Problem was, all the stores were in England!

Even for JP Morgan (NYSE:JPM) – the greatest investment banker of all time – this one was tricky. But he came up with a solution: He bought a big block of the retailer’s shares on the London Stock Exchange and put them in a trust.

Then he sold shares of the trust on the NYSE. These shares were called American Depository Receipts – or ADRs for short.

The company was Selfridges. And with Americans able to invest in a well-managed foreign company with far less risk, the shares sold like hotcakes. And thanks in no small part to this early access to American money, Selfridges is renowned and still thriving today.

So if you want to toss darts around, you could randomly add 3-7 ADRs to your portfolio – a move that will cut your portfolio risk in half, while increasing your profits.

For example, you can go to www.adr.com and throw darts at companies like Holland’s Aegon NV (NYSE: AEG), China’s Acorn International Inc (NYSE: ATV), or Brazil’s Aracruz Celulose SA (NYSE: ARA).

But randomly picking foreign companies is pretty reckless. Here’s how to invest in international stocks properly…

The Four Advantages of Investing in ADRs

What if you knew which international companies were primed to explode in share price? That’s exactly the kind of profitable information that New Frontier Trader readers get all the time.

So here’s my four-point guide for selecting the best foreign ADRs and how they can roll back your risk, even as they ramp up your returns.

• ADR Advantage #1: International Markets Don’t Move Together:

One of the main advantages that ADRs offer is that stocks in two different countries don’t move together.

When you hit the ground in most foreign countries, it’s a whole new economic, political and cultural landscape.

So even if your U.S. stocks are going down, your ADRs might be rising. Take Argentina’s Banco Macro (NYSE: BMA), for example. You could have bought it on July 6 for $16.34. It’s currently trading around $22.85. That’s a 40% return in just two months.

The New Frontier Tip: Buy at least three different high potential ADR stocks, operating in at least three different international countries.

• ADR Advantage #2: Hardship Breeds Managerial Excellence:

Okay, so what about countries that are chaotic – either economically, politically, or in terms of corruption? Places where managers tread in fear day by day.

Check out Transparency International’s Corruption Perception Index. It’s a good measure of social disarray. The United States has a relatively low corruption score of 18, while Somalia has the highest at 180.

Managers become slothful when business is easy. But imagine trying to do honest trade in a pirate haven like Somalia?!

And how about the BRIC economies – Brazil, Russia, India, and China? The corruption score is 96. In fact, Russia alone scores a whopping 147 on the global “Dewey, Cheatem & Howe” scale. Not even Superman’s x-ray vision would help an economist’s macro analysis.

But intense social disarray breeds the toughest managers, and the companies that rise to the top, despite the chaos, are often the pick of the bunch.

One such firm is Ecopetrol (NYSE: EC). It’s the largest integrated oil company in Colombia. You could have bought it on May 18 for $19.31 per share. By Labor Day weekend, it was trading at $26.41 for a tidy return of 37%!

The New Frontier Tip: Look for outstanding management where Wall Street doesn’t expect to find any.

• ADR Advantage #3: Muddy Waters Hide Big Fish:

Studies have proven that Wall Street analysts are incapable of honestly reporting opportunities in their home market. And they’re even more misleading if you try to follow them overseas.

The analyst’s real job is directing traffic where Wall Street’s CEOs and their boards want order flow to go. If executives need to cash out their options, the analyst’s opinion is suddenly upgraded to a green light.

Frankly, Wall Street doesn’t make a dime helping you find a potential fortune in developing countries.

But there are a few outstanding individuals like Warren Buffett, who are skilled at spotting hidden jewels. So you could just buy Berkshire Hathaway (NYSE: BRK.B).

But we have a better way: Go direct!

Take China, for instance. Getting solid information from this murky, mass-demand economy is like pulling teeth from a shark!

But if you had the edge, you could have bought shares in the massive Chinese Holiday Inn, with more than 500 budget hotels in more than 90 Chinese cities. Had you bought Home Inns & Hotel Management (Nasdaq: HMIN) at $15.19 on May 12, you’d be sitting on an 88.1% gain in just four months.

The New Frontier Tip: Target markets that Wall Street doesn’t want you to understand.

• ADR Advantage #4: Hunt Down Profits That American Conglomerates Can’t Touch:

Foreign companies located in faraway lands that rise to the top of their regional markets are special. By the time the world’s biggest investment banks invite them to become an ADR, they’re pumping out profits like one of J. Paul Getty’s oil rigs.

South America has hidden Copa Airlines (NYSE: CPA) from American investors until just recently. You could have bought the stock for $32.22 on May 27. Today, it’s trading for $43 – a fast return of 33.4%. In addition, the firm’s operating margin is 20.3%. Compare that to margins at Southwest (2.1%), Jet Blue (6.5%), or American (-3.4%).

The Single Best Way for Investing in ADRs…

Each of the returns I’ve mentioned above were recommendations in Alex Green’s New Frontier Trader newsletter. This service gives you an edge over the crowd in grabbing the best gains from investing in ADRs.

And the rest of the track record speaks for itself. This year, the service has closed out nine double-digit winners on international stock positions and six triple-digit winners by playing foreign stock options.

Time after time, history has shown that the best way to combine reduced risk with explosive returns is to invest in overseas markets, where Wall Street doesn’t want you to look.

If you’d like to start enjoying the kind of profits that the New Frontier Trader has kicked out to subscribers, simply check out this report.

It all starts with education,

Dr. Scott Brown

Source: Investing in ADRs: The Most Powerful Way to Reduce Market Risk

In the 1950s, one argument stated that short-term market activity results in the law of one price – i.e., that buying and selling mispriced shares of the same stock forces a single price to dominate.

Then came the “modern portfolio theory,” which claimed that investors simply couldn’t beat the market averages. This so-called “market efficiency theory” was the impetus behind the formation of the Vanguard 500 Index Fund (NYSE: VFINX) – the world’s largest mutual fund.

Score one for the stuffy “efficiency theorists.”

But while they congratulated each other over brandy and cigars, a little-known professor spoiled the party in the 1980s with a straightforward study that is still the driving force behind one of the most lucrative wealth-building approaches today…

Forget “Market Efficiency”… Here’s the Best Way to Beat the Market

The study simply categorized companies by market capitalization (shares outstanding times share price). The 10 divisions ranged from small to large – and research proved that small firms consistently outperformed their larger cousins for many decades.

And it’s now widely accepted that this “small firm effect” is arguably the best way for investors to beat the market.

And the logic in seeking out small firms is sound. After all, Microsoft (Nasdaq: MSFT), Wal-Mart (NYSE: WMT) and hundreds of other mega-companies all started as small firms.

It’s what we like to call the “white cap” effect…

The Perfect “White Cap” Stock – Five Common Characteristics

The beauty of “white cap” stocks is that they feature a powerful, earnings-boosting blend of three “market efficiency” anomalies – momentum, value and IPOs.

• White Cap Stock Factor #1: Products That Satisfy Unmet Market Need

One of the key traits of a good momentum stock is that the company has an exciting new product(s) that fulfills an unmet consumer need.

Take Apple (Nasdaq: AAPL), for example. With consumers across the world clamoring forApple products, the stock has refuted the “market efficiency” approach and delivered outstanding returns for investors.

The White Cap Report remit: Target very small firms with products that supply an unmet market worth at least $1 billion.

• White Cap Stock Factor #2: Company is a Stock Market Newcomer

Many investors shy away from Initial Public Offerings (IPOs) because they’re too unknown and unproven in the stock market.

But invest properly and the risk is certainly worth the reward. Plus, you can mitigate risk by only picking small firms that have received an upgrade from an over-the-counter (OTC) stock to a major exchange. It also ensures that you’re not buying into a penny stock, which really ratchets up the risk.

• White Cap Stock Factor #3: Low Debt

When people and institutions buy bonds from a publicly traded firm, that money has to be paid back plus interest.

This is why bondholders (debt) can sometimes hurt regular shareholders. Debt puts a drain on building assets like cash, and as debt rises, shareholder value drops.

• White Cap Stock Factor #4: Low Competition and High Barriers to Entry

Warren Buffett, the greatest stock investor in the world, looks for companies in industries with high-entry barriers and low-exit barriers. Why? Because it’s difficult for any serious competition to join the industry.

The wisdom behind this approach is that poorly managed, unprofitable firms can get out easily without resorting to desperate price gouging – something that would cause a consumer bidding war and damage the well-managed firm’s profitability.

• White Cap Stock Factor #5: No Analyst Coverage

Watch shows like “Mad Money” on CNBC and you get a sense that Wall Street’s attitude is, “If the public wants stocks, we’ll give ‘em stocks.”

Thing is, though, lots of companies aren’t recommended to make you wealthy… but to fatten up commissions for Wall Street firms.

In fact, there are numerous studies that show that Wall Street analysts are absolutely untrustworthy. For example…

• They’re perpetually bullish and are pressured by CEOs, fund managers and supervisors not to downgrade a stock. This means the public is almost never told when they should really sell a stock. The reality is that when there’s a fire in the house, Wall Street opens the exits for its “good ol’ boys” first and leaves you behind to get burned.
• They often recommend the same stock as other prominent analysts. So if he’s following her, and she’s following him, just who the heck is doing any meaningful “research” on Wall Street?!
• They’ve been caught “front-running” – i.e., recommending stocks that prominent investors, investment houses and employee option-vested Wall Street executives are trying to sell for an obscene profit. This was particularly true in 1999 and 2000, where the vast majority of top executives cashed out, even while analysts where overwhelmingly bullish across the board.

Finding White Cap Stocks With The White Cap Report

This is where The White Cap Report differs. The goal is to find firms that Wall Street has no clue about. It makes sure few if any analysts covers the stock. This way, the waters don’t get muddied and you’re able to get in before the market does, sending the price upward.

All five of these “white cap factors” are essential parts of the investment formula that The White Cap Report team follows in identifying the small-cap stocks packed with the most profit potential – a formula that has proved extremely successful.

The results speak for themselves. In the last month alone they’ve locked-in two 100% gains and a solid 35% gain. Not to mention, their current portfolio contains another seven winning picks.

Source: “White Cap” Stocks: The Best Way For Investors To Beat The Market

If you want the inside track on the best momentum stocks with ultra-explosive gains, throw on your “x-ray glasses” and focus on one of the most useful financial ratios around.

It’s called return on equity (ROE), but in many ways it tells us so much more.

ROE is one of the best measures of a corporation’s profitability. It shows you how much profit the company generates with the money shareholders have invested. Let me show you how to easily pull this number out – and how profitable it can be.

How to Calculate Return On Equity (ROE)

You calculate return on equity (ROE) by dividing net income by a shareholder’s equity. The higher the number, the more effective a company is at turning its assets and employees into piles of money for investors.

For instance, between 1998 and 2003, (NASDAQ:DELL) Dell Computer’s highly efficient direct sales and high profit-margin strategy paid off in terms of strong earnings growth and a double-digit ROE of 46%. During that same period Dell shares soared 91.95% raining money on shareholders.

ROE explains why Green Mountain Coffee Roasters (Nasdaq: GMCR) posted a 92.86% return while the S&P500 tanked, -34.37%, over the last year. It’s been a horrific time for most investors, but GMCR shareholders have had lots to smile about as management skillfully squeezed out a 27.85% return on equity.

It’s made Green Mountain one of the few really safe harbors for the investors to ride out the market’s “storm of the century.”

The ROE ratio looks like this:

The only way this ratio can stay high or increase is by maintaining or increasing the bottom line net income through good management. If executives try to hose investors by sucking profit away – issuing more shares through a seasoned equity offering – you’ll catch them by the drop in this ratio.

Other investors who solely focus on net income won’t know the jig is up, because it will stay the same. That’s why ROE is a much better indicator of management effectiveness at bringing home the bacon.

How to Track Return On Equity (ROE)

Return on equity (ROE) is easy to track through many free financial websites – I like to use Yahoo! Finance. First, type the stock symbol of the company you’re looking for into the “Get Quotes” form on the upper left part of the web page.

When the page for the company’s information comes up, click on the “Key Statistics” link. Then on the same page in the “Management Effectiveness” section you’ll see the value for “Return on Equity (ttm).” This tells you how well management is generating profits for shareholders.

Just look at how their shares have soared…

We can also pull up the amount of institutional shareholders of this company. One of the other interesting things we can access on Yahoo! is the amount of institutional ownership of GMCR. Today it’s almost 27.85% of the company shares.

Institutions are some of the biggest drivers of price movements on the markets and a low institutional ownership means that this stock could have much more to go. By comparison, Starbucks has an institutional ownership of 66% – and a ROE of 3.47%.

Return On Equity (ROE) – How Well Is Management Doing?

Quite simply, a higher return on equity (ROE) number tells us how well management is doing, and if a company is undervalued.

It’s imperative you watch closely how ROE changes over time – ideally you want it to increase. Print off and save the Yahoo! Finance web page for “Key Statistics” each week and you’ll see for yourself how return on equity is changing. If return on equity is double-digit and increasing you might want to consider buying the stock.

If a momentum stock like Green Mountain keeps on increasing its ROE, the stock should continue rising as well. So watch for the new ROE numbers for GMCR on June 28.

It all starts with education,

Dr. Scott Brown

Source: Return On Equity (ROE): Find Explosive Momentum Stocks With This Financial Ratio

Gold has been an incredibly hot topic over the past few months. On one side, it looks cheap from an inflationary perspective, and on the other, overpriced. Our own Louis Basenese even suggesting that we should consider shorting gold. The debate has ranged on our message boards pro and con…

But regardless of its short-term movement, we recommend holding 5% of any portfolio in precious metals – like gold. So what is the best way to accomplish this? We found a number of ways to do just that.

The Best Ways for Investing in Gold

Rick Rule, Chairman of Global Resource Investments, makes a compelling argument that gold isn’t a commodity in as much as it’s insurance. “Gold is disaster insurance. You shouldn’t want it to go up. Would you want to be paid in life insurance, home insurance, or auto insurance proceeds? That would mean you want to die, have your house burn down, or get seriously injured!”

Rick finds the notion that some people actually want gold to rise to $2,500 an ounce extremely distasteful. He believes the only thing gold has going for it right now is its volatility. It’s why he owns gold stocks.

There’s a few other ways for investors to own gold…

• Physical Gold: Rick holds his physical gold in a bank safe deposit box. His is located at his half-year residence of Canada in the bank of Nova Scotia.
• Paper Gold: The SPDR Gold Trust ETF (NYSE: GLD) is a good option for investors who need liquidity with their gold assets. You can buy and sell this ETF like any stock on the market. Which also means you can sell it short, if you believe it will fall.
• Gold Coins: Gold coins are an easy way to own gold in your portfolio. Unfortunately, because of the demand, you’ll be paying a hefty premium to purchase them. This was discussed a little in our Panel Discussion, and we’ll have more for you on that dialogue tomorrow.
• Gold Futures: Gold futures may be an excellent option for some. However, he stays out of gold futures because he believes it’s too volatile. Rick believes silver futures are even worse, like gold futures on steroids.
• Gold Stocks: Gold producers trade between 1.7 and 2 times the net present value of their cash flows they could generate. It’s called the warrant on the gold price. Basically the market has assigned a large “growth” premium to a mining business – where the business gets smaller every day. There’s less and less gold to mine.

It also means that if gold went to $1,200 or $1,500, the cash flow these producers could generate would increase exponentially. However, this also works in the opposite direction. It’s why gold stocks are so volatile.

The second problem is that the gold industry as a whole has become greatly inefficient. Since the 1970s, when Nixon broke down the Bretton Woods monetary system to pay for the Vietnam War, gold prices have fluctuated from speculation from its controlled price of $35 to well over $800.

Rick explains it another reason why things are wacky with gold stocks. In a word, leverage. Imagine a $300 per ounce gold market where an inefficient producer mines gold at a cost of $320. That’s a negative 6% margin. If gold goes to $400 or above, there’s an infinite increase in profit, and better efficiencies on increases in price.

So ironically, Wall Street has wanted to see leverage in gold stocks to increase efficiency and make it easier to post stellar profits on gold rallies. It’s this leverage that’s also increased the risks and the volatility.

We had a considerable amount of interest in “profit generators” from Rick’s talk yesterday. People asked for more. So I talked with a few of the other experts to get their suggestions:

• Out of Eurasian Minerals investment director, Scott Close suggested Esperanza Silver Corporation (CVE: EPZ).
• Then Patrick Moodie of Rimfire Minerals was kind enough to recommend a few more: Riverside Resources Inc. (CVE: RRI), Almaden Minerals Ltd. (NYSE: AAU) and Cornerstone Capital Resources (CVE: CGP).

The Truth About Options

Karim Rahemtulla, Investment Director for Mt. Vernon Research, emphasizes that options have become much more popular because they are a tool to enhance returns. They are not just a way to go long or short. They are a way to use less money, protect, go long, OR go short.

Karim never thought he would see companies like GE fall into the single digits, and sees tremendous opportunity around him, “You can look at this market as a way to set yourself up for high profits, yet, with a degree of safety.”

LEAPs allow you to put very little of your capital at risk. These are long-term options, which are known as calls in shorter maturities. They let you go long – profit from increases in stocks – while putting only 15% to 20% of your capital on the line.

Then you get one, two, or three years of time to work on your side. In fact, there was one stock Karim suggested attendees look at (specifically, its 2011 LEAP) for that exact reason. Our audio recordings will have all the details. You can find out more, here.

He really emphasized that it’s easy to get confused with the complexity of options. It’s unfortunate, but it can be solved by focusing on a few simple option strategies:

• Covered Calls – allow investors to receive a premium on the stock you own. When you sell a call you give someone the right to buy your stock at a specified price, called the strike price. If the cost of the stock never goes above that price, you keep the premium they paid you and you don’t have to sell.
• Long Puts and Calls – Here you can use options to control fast moving stocks for a fraction of what it would cost to buy them outright. By buying a call, you have the right to purchase that stock at its strike price for a long time horizon. By buying a put, you have the right to sell at a particular price.
• LEAPs - These are long calls with extremely long times to expiration. This allows you to control the stock for a fraction of the cost of outright purchase. You can also do these in your retirement account.
• Put Selling – Here you sell an out of the money put on a stock that you don’t expect to weaken. If the stock doesn’t drop you keep the premium you take in.

Karim wrapped up with the three best strategies to use for the market right now: selling calls, selling puts and LEAPs.

Put Options: Getting Paid to Buy Your Favorite Stocks

Lee Lowell, from The Instant Money Trader, explained why so many investors on the sidelines are looking at put options as a way to buy back into this market.

The advantage of selling put options is that you get paid up front in cash from the put option buyer, which obligates you to potentially buy these quality stocks at below their current market prices.

There is a margin requirement involved. But it’s significantly less than what it would cost to buy the stock outright. And the total risks involved are no more than what it would take to purchase the stock outright.

Lee recommends selling put options that are either $5 or $10 out of the money that have three months until in expiration. There were three stocks in particular he recommended for this strategy right now: General Electric (NYSE: GE), Microsoft (Nasdaq: MSFT) and Intel (Nasdaq: INTC).

Racing Away…

Time has just been flying by over the past few days. Good people, great food and phenomenal market intelligence. We’ve hardly had time to catch our breath, so to speak. And just as I was thinking that, I ran into Keith Fitz-Gerald, Investment Director for Money Map Press.

Or more correctly, he ran by me. It seemed he was trying to catch a ride on one of the cigar racing boats in the harbor that I’ve been telling you about. As he stopped I asked him a little about the “Geiger Index” I’d heard so much about.

Apparently, it’s an algorithm he’s developed to monitor the market’s movements. It tips him off before big moves happen. I didn’t even have time to get more information out of him before he trotted off in search of cigar racing glory.

I didn’t have the heart to tell him the gusting winds we were receiving had cancelled most of the races. I will have my Editor in Chief, Alexander Wissel, send you some more information on The Geiger Index in the next day or so.

In many ways, this conference couldn’t have come at a more important point: With our new President, the markets recent plunge, the global upheaval and domestic economic disarray. As our last day closes out, the impression I get from many is that they’re more confident in what to expect based off of what they’ve heard over the past week.

And they aren’t the only ones. Even as an accredited finance professor, I’ve greatly expanded my knowledge this week.

Stay tuned for my wrap-up tomorrow, where in addition to touching on some of the biggest ideas and strategies from this week, I’ll give you an earful of the heated conversations from our panel discussions – which included green energy and gold coins…

Source:  “Golden Opportunities and Your Options”

If you’re just joining us, we’re at the Renaissance Vinoy in St. Petersburg, Florida. We’re enjoying the sunny weather, the hospitality, and a small fleet of high performance cigar racing boats in the bay. Their crews have been all over the place in the last day or so.

And if you’ve been “tuning in” for the last few days, you know that I’ve been all over the place in the last few days as well. I’m your “eyes and ears” during our 11^th Annual meeting.

And today is no different. It’s why I’m listening to Louis Basenese break down our current situation, and what we can do about it…

Taking a Look Back on the Crash

In one of the best explanations I’ve heard so far, Louis Basenese broke down the crash of 2008, and why it broke so many “rules.” It’s important to understand because traditional “safe havens” surprised so many investors by not performing as expected, shaking confidence.

There were other things in play as well. Regulations like the ‘uptick rule’ changed. And it was made worse by the collapse of some key Wall Street institutions that ran segments of the credit market. Mortgage assets, which numerous institutions had on their books, took a nosedive as reckless risk evaluation collided with collapsing home values.

It was a confluence of events few could have predicted.

Louis, or ‘Lou’ as friends know him, made sense of these events before his talk turned to some of the companies that are on his radar.

On of them is Stonemor Partners L P (Nasdaq: STON). This company makes caskets and owns cemeteries. Stonemor also sells burial plots to people and has entered the pet cemetery market where the margins are much more significant.

And while this “recession-proof” business has cash and a steady demand – it’s trading at just over $10 a share – Lou cautioned against buying right now. Their quarterly report comes out on March 31. Wait and see how the financials look and if they maintain their dividend payment.

Market Threats And Offshore Opportunities

Thomas Fischer, Sr. Vice President of Jyske Global Asset Management is from Denmark – you know the country with the most wicked, killer, pastries on the planet. He started in foreign exchange as a trader for 22 years. He presented some valuable advice for “newbies” on Forex, cautioning that while currency trading is fun – you have to be careful on a trading platform that gives you 100:1 leverage (standard contract) or more.

He’s seen time and time again that people trading with $5,000 will make 2 or 3 trades that are good. Then they get overconfident and lose it all.

Thomas recommends starting in the EUR:USD, saying that 35% of all trades are in this currency.  This makes it the most liquid. He’s bearish on the Euro, because he believes the next thing to blow up is eastern Europe.

Like Alex Green he’s bullish on the stock market for the long term. He explains that cash holdings are at 1990 highs here in the US …that’s $8.85 trillion, earning less than 1%! That’s a ton of money waiting to flood into the market.

Thomas recommended some intriguing opportunities including a EUR bond BBB yielding 15%. Get the full details on his currency trading recommendations, as well as his European perspective on transferring your trading accounts offshore, here.

Thomas Fisher put it this way, ”The currency market doesn’t correlate with stock or bond markets. You can always find a currency that you can own outright that will outperform another currency. If you pick your currencies wisely.”

And as our friends from Everbank pointed out, for the beginning investor, there is plenty of good, easily accessible research out there on the fundamentals that can give us an idea of the potential direction and current yields for currencies. For example, here.

Another Great Suggestion

We’ve heard from dozens of experts and specialists over the past few days. In addition to their personal viewpoints and opinions on how to prosper in good times and bad, we’ve also been getting some great tips on asset protection.

One, from Byron King at Outstanding Investments, was about storing your assets in bank lock-boxes…

If you own gold, make sure you get an account co-signer at the bank for any lock-box. If you die and don’t have a co-signer, the bank will not open it without a revenue service representative present. It’s an easy way to keep the IRS from hassling your grieving family members.

If your interesting in getting the full conference audio files, and all of the little tips that we’ve heard, go here.

Natural Resource Prospecting

Rick Rule is always a popular speaker at our conferences, and I’m happy to say he doesn’t disappoint. In this session he talked about the risks and rewards involved with resource exploration.

I was surprised to learn that only 1 of 5,000 prospects becomes a mine. This is why exploration can be so costly. However, the upside potential can be huge. Returns on successful efforts are often as high as $1,000 in profit for every $1.00 invested.

According to Rick, the only statistically rational way of to speculate in mineral exploration is to develop a portfolio of exploration stocks called “prospect generators“.

Rick explains is better on the recording, but prospect generators are corporate assemblages of very high quality explorations and entrepreneurs. They employ specialized technical or commercial skills to generate exploration concepts. Rick emphasizes, “It’s important to recognize that exploration is a knowledge business like research & development in technology.“

He added that the best due diligence is done by mining companies – not by investors or brokerage firms who often have a conflict of interest in their recommendations.

Rick also talked about three companies he’s personally invested in.

Rick Rule is an expert on natural resource investing, and one of the most knowledgeable “prospectors” I know. He won’t give you a stock suggestion if he wouldn’t personally put money in it. The audio files will have more on the three he likes.

Questions Answered

Throughout the conference I’m often approached with questions on a session or two. One question in particular stuck out today.

Oxford Club Chairman Circle Member Harry J. comes up to me as I’m pouring a cup of tea.  He remarks, “What do I do if I’ve already got a million dollar stock portfolio?“  I looked at him and replied…”Well, you celebrate!“

Turns out Harry used the principles and portfolios we recommend in the Oxford Club…he showed me the numbers to prove it. I think the best thing he can do is to educate others…pass on the wealth of knowledge, as they say. That’s what we’re trying to do with our new Investment U course, “How to Create Your $1,000,000 Portfolio From Scratch.”

It teaches you, your kids, and your grandkids the nuts and bolts of the investment approach we use at the Oxford Club. It will allow you to do exactly what Harry did.

We’ll have more on that soon. In the meantime, I’m rushing back into another session now. Stay tuned for our closing day’s wrap-ups and panel discussions on Monday.

Source: “Looking Back, So We Can Move Forward”

He goes on to say, “But this talk will shift soon to the ‘now what’ questions of what to buy when we do reach that magical point.” Here Scott discusses the Mutual Fund’s cousin, the ETF, and how to take advantage of investing in one.

Many will shun individual stocks for the safety of mutual funds. And with the explosion of index funds, we’ve never had a larger variety of options to help us diversify. These index funds are designed to yield a return equal to that of a particular index. They allow you to purchase a variety of assets as a low-cost, passive-investment strategy. And there are a number of indexes that specify sectors, stock indexes and international markets.

It’s a powerful strategy that allows you to slice and dice the global economy in a risk-managed approach. But we don’t like to stop simply at reducing risk and diversification.

There’s another cousin to the mutual fund and index fund families that many investors have heard of but haven’t taken advantage of. If you own mutual funds, indexed or otherwise, you need to know if using exchange-traded funds (ETFs) makes more sense for you. Here’s what you need to know about ETFs, the close relative to your mutual funds…

Exchange-Traded Funds – Index Mutual Funds on Steroids

Exchange-traded funds (ETFs) were first introduced in 1993, and are based on index mutual funds. They use similar principles, but have fewer management and transaction costs associated with them.

Unlike mutual funds, which can be bought or sold only at the end of the day when NAV is calculated, you can trade ETFs throughout the day, just like a share of stock.

• Exchange-Traded Funds are a portfolio of shares that can be bought of sold as a single unit.
• You own a proportionate amount of the shares held, with some ETFs even allowing transfers-in-kind.
• They can range from portfolios that track broad global market indexes all the way down to very narrow industry indexes.
• Exchange-Traded Funds are becoming a preferred way for investors to get all of a mutual fund’s benefits, with none of the downsides.

Think of ETFs as mutual funds on steroids.

Exchange-Traded Funds Becoming More Popular

While exchange-traded funds are becoming more popular by the day, they weren’t always so highly regarded. In fact, the creator of The Vanguard 500 Index Fund was against them and vigorously attacked the possibility of their success. In the end, John Bogle ended up adding a whole series of ETFs to the Vanguard family.

ETF investments quickly competed against indexed mutual funds. By early 2007, over $400 billion was invested in over 300 ETFs in three general classes:

• Broad U.S. market indexes,
• Narrow industry or “sector” portfolios,
• And international indexes.

The first ETF, like the first indexed mutual fund, matched the S&P 500 index and was given the symbol SPDR for Standard and Poor’s Depository Receipt. Many know it by its nickname, the “spider.”

Spiders spawned many new exchange-traded fund products like “Diamonds” that are based on the Dow Jones Industrial Index DJIA, Qubes based on the Nasdaq 100 index, and WEBS based on the World Equity Benchmark Shares of a portfolio of foreign stock market indexes.

The Advantages of Exchange-Traded Funds Over Indexed Funds

A big advantage of an exchange-traded funds over a conventional index fund is that they trade continuously throughout the day. You can buy and sell ETF shares just like a share of stock, while with an indexed mutual fund – where the net asset value is quoted – you have to place an order to buy or sell but that doesn’t transact until after the market.

This can be frustrating if your technical analysis indicates a buy or sell trigger at some point during a trading session but the market moves too far for you to take advantage of it by the end of the trading day.

And unlike mutual funds, exchange traded funds can be sold short of purchased on margin like a share of stock.

When you analyze these factors in light of the fact that options also trade on exchange-traded funds you can place positions in the general market, global market, or industry sectors, where you can:

• Employ protective hedges with puts or calls on your long or short ETF portfolio.
• Use combined buy-write options strategies where you collect premium from the short sell of an option to compensate for the cost the long options – bull and bear spreads, calendar spreads, diagonal spreads, butterflies, iron condors and so on, are all available to you trading ETFs but NOT with indexed mutual funds.

Exchange-traded funds also have tax advantages over mutual funds:

• When large numbers of mutual fund investors redeeming their shares – but you don’t – the fund has to sell securities to meet the redemptions. This creates a capital gains tax that is passed on to the remaining shareholders.
• Which means you end up paying the other guy’s tax obligation!
• In an exchange-traded fund, when somebody else sells, they have to pay the tax, not you.
• And when very large trades redeem their positions in the ETF, the transactions is settled with shares of stock in the underlying portfolio – not triggering a stock sale by the fund sponsor and no bogus tax bill to you.

Using Exchange-Traded Funds: How to Put Your Index Mutual Fund on Steroids

It all began in 1994, when one of my brother’s college buddies began talking about the big checks his girlfriend was receiving as a member of a hot, new Multi-Level-Marketing “opportunity.” His friends joined and soon convinced others to enter. Business was booming.

Then the money stopped.

Like many of these stories, the company went under – its investors and many of its employees were out countless millions – many losing more than just money.

And now I had the opportunity to sit down with the founder of one of these debacles. One who had wantonly misspent revenues on such extravagances as chartered corporate jets to Paris and Friday lobster dinners.

Before I blew him off entirely, I realized that this was a rare opportunity to get into the mind of a fraudster. I said “yes” to Randy’s visit and was soon sitting in front of him.

He’d flown down to Puerto Rico to try to coax me into joining him in his next scheme. I welcomed the opportunity to understand the mental wiring of a financial criminal.

Unlike this meeting, where I could see the culprit face-to-face, most Americans never get to meet the person who is trying to scheme them.

Financial Fraud – Always Such Nice, ‘Honest’ People

He explained that he didn’t begin in financial fraud, but that he started as a salesman for a penny stock “pump and dump” scheme in New York. When it ended, he’d made a lot of money as a brilliant – yet dishonest – salesman for a dishonest business.

He was soon invited into a vitamin scheme preying on financially unsophisticated elderly people where the FBI temporarily locked him up. In the federal penitentiary he learned that it was easier to steal money from the public through Multi-Level Marketing since intentional fraud would be re-interpreted by bankruptcy courts as “miss-management.”

As an investor and consumer you’ll be bombarded by all sorts of “opportunities” that come your way – from any number of unexpected sources. It may be your barber or hairdresser who’s just learned of a “hot” opportunity.

It may be an old friend from college.

Each “opportunity” will have a reasonable story. The fraudsters will have all sorts of evidence to bolster their “sterling” reputation. But that’s just the start of the bait they’ll dangle in front of you.

Making things even harder, the friend or colleague that contacted you will have already been pulled into the con’s web of lies. As an unsuspecting promoter, they’ll express concern or even anger over your disbelief. But you’ll lose your you-know-what if you hand over your money – and your friendship or family relationships will end even worse.

Financial Fraud & Off-Shore Banking

There has been consistent number of financial fraud in “off-shore banking” scams. And I am approached for help at least two or three times a year by individuals who have lost money in an international con-job.

Bermuda has two major sources of foreign revenue for its population; tourism and offshore insurance/finance. And while there are many legitimate offshore investments, there are just as many schemes and con artists eager to steal your money. Just watch the show American Greed on CNBC and you’ll quickly see what I mean!

Local politicians protect fraudulent operators in order to avoid any negative press in the U.S. and European markets that drive their industries. They fiercely protect their market – even if it means you get hosed.

The sad irony is that these schemes gush such fat geysers of ill-gotten cash that conmen protect themselves with expensive legal defenses – paid for by the victims.

They use the world’s legal system to hose the innocent by taking advantage of laws that sometimes seemed designed to protect crooks, particularly the draconian British libel laws that exist in many offshore financial centers.

Since the fraudster suddenly controls millions – or billions – there’s always an unscrupulous attorney willing to file a defamation lawsuit against any and all whistle-blowers. It leads to a situation where many frauds aren’t discovered until it’s too late.

6 Simple Steps to Avoid Financial Fraud

When you’re presented with an “opportunity”, there are a number of ways to give it a “sniff test” and tell if it’s legitimate.

1. Sounds Familiar

Does it look like anything you’ve ever heard of or seen before? It’s amazing how many versions of pyramid schemes or Nigerian scams there are out there. If it sounds similar, chances are it is.

2. Trusted Sources

Does this investment come from a trusted source? This is the hardest hurdle for most to get by. Bernie Madoff seemed to have an impeccable resume and background, and it’s why his fraud went on for so long. Do your own reference checks.

3. The Pudding

The proof is “in the pudding” as they say. If you ask for performance results or documentation to back up claims, they should easily provide the information. Information should be available on a quarterly basis.

4. Information Demands

If someone were to walk up to you and ask for your credit card number, you’d say no. But you’d be surprised to find out the number of people who give up sensitive information – like bank account numbers and personal data – for an opportunity to collect untold millions. When someone requires something like this without a reasonable expectation, warning flags should go up.

5. Your Uncle

Imagine you had a skeptical uncle (some of us don’t have to imagine it). If you presented the opportunity to him, what would be his response? If your uncle doesn’t approve, then neither should you.

6. Embarrassment

Would you have any qualms about sharing this investment with your friends and family? What about if it went badly? If you would feel that any investment of yours isn’t something that you’d be embarrassed to share, then that should tell you something.

Finally, it never hurts to be overly cautious. Take your time and do your research. It won’t stop all the scams and fraudsters out there, but it can protect you from the thousands of other snakes in the grass.

Source: Financial Fraud: 6 Simple Steps to Protect Yourself