LAS VEGAS — Economic upheaval and uncontained federal spending heighten risk for investors but ways exist to deploy your money profitably, said Dr. Mark Skousen, an economist who writes the monthly Forecasts & Strategies investment newsletter.
Despite the topsy-turvy stock market, Skousen told attendees during a presentation at FreedomFest here that he developed and tested investment advice during the past three decades while guiding his newsletter readers on where they should put their money. His talk, “My Seven Lessons After 30 Years of Writing Forecasts & Strategies,” focused on staying disciplined but yet flexible enough to respond to federal policy changes.
“There is hardly ever a period that you have steady, rising markets,” Skousen said.
As a result, Skousen advised following a basic investment strategy that limits risk, while still allowing plenty of opportunity to benefit when the markets turn bullish.
The top seven lessons are:
1. Government policy can greatly affect your investment portfolio for good or ill.
2. Bull markets climb a wall of worry.
3. Don’t fight the Fed.
4. Gold is money and the best protection against an uncertain future in Fed policy.
5. Don’t be tempted to turn your money over to any one fund manager or any one fund—diversity your portfolio and keep your management fees low.
6. Invest in your own business or other people’s businesses.
7. Be prudent and avoid spending too much.
If some of those tips sound a little like the advice that one might expect hear from Benjamin Franklin, it is more than coincidental. Skousen is a descendent of Franklin and has edited the The Compleated Autobiography by Benjamin Franklin and The Autobiography of Benjamin Franklin. Franklin is Skousen’s eighth-generation grandfather.
The seven investment lessons show that much lies outside of an investor’s control. Fiscal policy, Fed actions and new laws all affect the outlook for equities.
Responsible fiscal policy has a “good story” to tell, Skousen said. Excessive government spending typically hurts stock valuations, he added.
Freedom Fuels Prosperity
Another key factor is the amount of economic freedom that exists in a given country, Skousen said.
“Countries under good leadership and free markets can create higher standards of living,” Skousen said.
Of course, no one can make money from investments by staying out of the market, Skousen said. Perennial market “bears” make headlines, while the “bulls” make money, he explained.
Of course, those bulls sometimes must wait for the market to go their way. One example is this year when the Dow has fallen for the first six months of 2010.
“In investing, no one has 20-20 vision in both eyes,” Skousen said. He explained that certain conditions and developments are difficult to assess perfectly and even the best investors are bound to find themselves on the losing end of trades from time to time.
One way to avoid losing more often than necessary is to reduce equity holdings when the federal government is following tight-money policies and to buy equities when the policies loosen, Skousen said.
The late economist Milton Friedman advocated watching both interest rates and the money supply to determine the direction of the stock market, Skousen said. Low interest rates, such as those in place now, reduce the cost of money and typically boost the stock market but a tight money supply counters the bullish effect, he added.
A traditional hedge against bad times is to buy gold, which has been rising in price during the past year as the market struggles to advance, Skousen said. However, that situation also can reverse, so investors should exercise caution and avoid putting more than 10% of their money in gold, other precious metals and commodities, he added.
For those who lack an entrepreneurial spirit, they still can benefit by investing in public companies led by people such as Apple’s visionary chief Steve Jobs and others who can project what consumers want to buy and provide it at affordable prices, Skousen said.