We may not spend a lot of time thinking about it, but most of
us would like to be rich.
About three times a year (usually when the payoff in the biggest
lottery gets above $200 million), everyone at Cabot kicks in a
buck and we buy a wad of tickets, with the understanding that any
winnings will be split evenly among us.
There are two things that interest me are 1) that everybody buys
in, and 2) that we always spend at least part of Coffee Time
(which is 10:30 to 11:00 here at Cabot) talking about what we
would do with our winnings.
We all know that our odds of winning are infinitesimal. (I always
point out that, statistically speaking, your chance of winning
the lottery is so small, that it's about the same whether you buy
a ticket or not.) But that doesn't keep us from making plans and
talking about them.
We all acknowledge the stories of people whose lives have been
ruined by the avalanche of lottery cash, including unwise
purchases, rampant envy and the platoons of con men and charity
seekers who inevitably follow a big win.
But we still want to be rich.
If we ever won, and each of us wound up with, let's say, $10
million after taxes, we would genuinely qualify as rich.
How rich would we be? Well, there's a big difference between
money in the bank and annual income, but annual income figures
are a place to start.
According to the latest reliable figures (done in 2008 and
including capital gains), having a little over $1 million ($1.14
million, to be exact) in annual income would locate you in the
top 1% of all American families. And having an income of $3.24
million per year would qualify you as part of the richest
one-tenth of 1% of all U.S. families.
Anyway, it looks like we're pretty safe from having to face the
challenges of wealth. The best we've ever done in our occasional
dips into fantasy finance is to match a couple of numbers on a
ticket with 42 numbers on it.
But on a serious note, if we were suddenly to be vaulted into the
upper reaches of the family wealth scales, we would become part
of the problem of the increasing gap between the wealthiest and
the poorest Americans.
I know that this is a politically charged issue, but I don't have
an ax to grind.
The question is whether there is a downside to having 87% of the
total net worth of all Americans in the hands of just 25% of U.S.
The government of China, which has lots of things to worry
about-corruption, pollution, inflation and unemployment among
them-is also worrying about the growing gap between the richest
and poorest Chinese. This topic has even shown up on the agenda
for major Communist Party Congresses.
But it's one thing for China to worry about wealth distribution.
That seems natural for a country that's still at least nominally
The question of what, if anything, to do when the wealth gap
widens in a capitalist country is something else entirely. The
gap may be unsettling, but the consequences of just about any
remedy you can think of are almost certainly worse. It's
something to think about.
And while we're thinking about it, we at Cabot will be working
hard to help you increase your own net worth. Our investment
advisories provide clear advice for equity investors-from
conservative to aggressive-who have investment horizons from
decades to days.
You can find a ton of information about how to prosper in the
stock market at the
, including a short quiz that will help you find the newsletter
that will fit with your investing personality.
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The Halter USX China Index tracks the performance of 200 or so
Chinese stocks that trade as American Depositary Receipts (ADRs)
on U.S. exchanges, giving us a snapshot of how China stocks are
doing. The Halter made a couple of two-month advances in 2010,
one in February and March and another in September and October.
But much of the year was spent trading sideways.
Oil prices are rising, and investor anxiety is running high as
the murderous loon in charge of Libya tries to cling to power.
Investors hate uncertainty more than anything (except, perhaps,
reporting and accounting fraud) and markets have reflected their
My approach to stock investing has a strong market-timing
component, so I'm advising my readers to dial back their exposure
to the emerging markets.
This involves curtailing new purchases and tightening loss limits
on all of the recommendations in the Cabot China & Emerging
As a matter of principle, I avoid trying to predict what markets
will do, whether it's for tomorrow or next year. The simple fact
is that no one can consistently predict where the markets are
But if you have a sense of adventure and a strong opinion about
what's going to happen in China and the other emerging markets, I
have an exchange-traded fund (
) that may interest you.
If you're convinced that China is in for a steep correction and
want to cash in on that dip, you should consider the
Direxion Daily China Bear 3X Shares (CZI)
. This ETF will earn you triple the opposite (or inverse) of the
price performance of the BNY China Select ADR Index. This
leveraged short fund has had three good days in a row, and a big
pullback in China would be highly profitable. Just be aware that
such a leveraged ETF is more of a short-term vehicle, not a
I don't advise it, of course, because it's a bet on the future of
an entire market. That means you can't-as you could with an
individual company-get any insight into a business plan, revenue
and earnings history, management, barriers to entry, debt,
product mix, strategy or any of the other bits of data that due
diligence can bring you.
Personally (and for my subscribers) I prefer going to cash when
the wind is in the wrong direction.
But if you have a hunch and want to make good money if you're
right, here's your chance.
For Cabot Wealth Advisory
P.S. Paul Goodwin is the editor of Cabot China & Emerging
Markets Report, which Hulbert Financial Digest rated as the #1
newsletter for five years in 2009 and 2010. During that time, the
Report rewarded subscribers with a jaw-dropping return of 174%
(an average annualized gain of 20.5% every year) versus the
Wilshire 5000's gain of 15.4% over the same period. Don't miss
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