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The stock market fell yesterday as there are rumors that the Saudis will not cut production when they meet on Friday. As a result, this is what happened to oil yesterday. If that is not bad enough, then the statistics in this chart came out yesterday: For those holding anything to do with oil or oil production, it was a real wake-up call as the world now has +158 million barrels of oil in excess of the historical average going back to 1983. That’s right, +45.8% more oil in reserve than the historical average. Then this week the oil analysts got it wrong again as they expected crude supplies to drop by -800,000 barrels, but they actually went up by +1,177,000. Basically, we are running out of places to store the oil and that is an even bigger problem. As new oil gets produced, it immediately has to be sold on the open market right away at any price, as there is no place left to store it. When things get so bad that oil needs to be “sold at any price” , just to get rid of it, then you have serious problems. I have been warning about this for over a year now, but investors are still bullish about oil and say that we may have hit the bottom. Sorry folks; if the Saudis and OPEC do not cut production, then everything will start being sold on the open market and “$30 a barrel, here we come” or another 25% drop in oil from here. Now what does this have to do with our Apple (NASDAQ: AAPL ) or Gilead (NASDAQ: GILD ) stocks, and why did they go down? Well, since a majority of stocks are in ETFs and Indexes these days, any one sector’s collapse can bring everything else down with it, no matter how strong the companies are that you hold or how great each is doing on Main Street. It does not matter one bit how strong your holdings are as anyone with a computer and a brokerage account can sell at any second in panic, and then seeing this happen high frequency trading computers join in and then we go down. The way to combat this is to: 1) diversify heavily by never putting more than 2% in any one stock, 2) never buy or sell stock out of emotion without crunching the numbers (Friedrich), 3) only buy stocks with elite management and great Friedrich numbers, and 4) when such stocks are not selling at good prices => You Just Do Not Buy Them. Friedrich has only allowed my clients to go 23% to stocks as he just can’t find many things for us to buy. It is a mistake to be fully invested at all times “just to be invested” as it’s great to do so when the bulls are running, but as I have said it is a terrible strategy when the bears and not the bulls eventually control the show. Remember, going back 235 years we have averaged two bull markets and two bear markets every 15 years, so one has to invest with a 15-year time frame in mind. Here are the last 15 years as proof: (click to enlarge) When everyone else is greedy, you sit on the sidelines; and when everyone else starts to panic, you only then get greedy. That is not my saying but that of Warren Buffett (paraphrased). As you can see my job is far from easy these days, but I sleep well at night as I always operate with the knowledge that we will have two bull and two bear markets every 15 years; and thus, I am prepared ahead of time. Not having a bear market show up since 2009 tells us that we are historically due for one. To ignore this fact will open one up to huge potential losses, such as those experienced by oil investors in the last few years, as they did not operate off of facts but on what their gut is telling them. The Friedrich Investment System works off of the facts, off of history (by using ten years of data) and by getting the story right. As a result of this analysis, we are 23% invested and 77% in cash because there is a great deal of 1) uncertainty; 2) manipulation by the government, OPEC, corporations and traders; 3) 1 & 2 allows for high frequency computers to step along with hedge funds and just amplify everything to the n’th degree. So, as you can see, investing properly is a science, which only works best when zero emotion is present along with a tremendous amount of hard work and due diligence. But in the end, Warren Buffett has only two rules for successful investing: RULE #1 = Never Lose Money RULE #2 = Never Forget Rule #1 Scalper1 News
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