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My 12 bold predictions for 2012 (Part II)

Recs

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January 01, 2012 – Comments (14) | RELATED TICKERS: RE , CS , TMF

This is Part II of my 12 bold predictions for 2012 (part I can be viewed here).

Before I start with the remaining 3 predictions, let me first say that I received hundreds and hundreds of e-mails in response to my Part I post.

Most of the e-mails came from people who wanted to sell me something (Viagra, cheap designer cloothes, etc.) or offer to meet single girls in Russia, but some of them also came from the people who really found my predictions for 2012 very valuable (or im their words: life-changing).

A good 20-30% of the e-mails came from novice investors who didn't really understand how they can double their profits by investing in both DOW and S&P500 at the same time (this comes from the secret I revelaed in my prediction# 2) . I'm not suprised about this at all as not everybody is an experienced investor as I am.

The novice investors' questions boiled pretty much down to this one question: "If DOW and S&P500 are closely correlated as you say (meaning, will have almost exact same return), then how can one double his/her profits by investing in both?"

Well, to be honest, my first reaction to this question was "What a stupid question?". Then, I reminded myself there are no stupid questions. (The only stupid questions are the ones that totally don't make any sense, like: "What's in your wallet?" or "Who will you call when the disaster strikes?").

So here is a simplified explanation of how one can double his/her profits by investing in both DOW and S&P 500 (even if I can help one thousand people be better investors, I'll be a happy man):

To keep it simple, let's assume you invested $100 in DOW (let's call this your initial investment).

When DOW goes 10% up in value, you made 10% or $10. Easy, right?

However, if you also invested $100 in S&P 500 at the same time when you invested $100 in DOW, you will also make $10 on your investment in S&P500 (being that from my prediction# 2 we know DOW and S&P 500 are closely correlated).

By doing this, your profit is now $20 instead of $10, meaning you doubled your 10% profit on your initial $100 investment (10% profit in DOW + 10% profit in S&P 500 = 20% profit).

Complicated, I know, but nobody said investing was easy. Many people (other than Wall Street's hedge fund managers and other shady Wall Street's cats) don't understand this principle and are then left wondering why they lose money in the market year over year.

Well, my friends, you need to have some levarage in this investing game, and your levarage is knowing me (or at least reading my predictions and related secrets).

 

Let's now continue with my 2012 predictions.

 

4. Motley Fool will fix their rec counting machine in 2012. 

Why I think so? First, let me say that I know this is one of my riskiest predictions so far. If it was that easy, they would fix it by now, right?

(I'm sure you all know what problem I'm talking about: You see a post with 2 or 0 recs / recommendations, just to find out by opening the post, that it actually has 27 recs. Basically, something's wrong with TMF's rec counting machine.)

The problem seems huge, but I have an explanation for the root cause of the problem, which makes me very optimistic TMF engineering team will be able to fix this one in 2012.

Well, here is what I think happened. There is this one guy in TMF's engineering team (most likely the senior engineer) who was in charge of maintaining TMF's rec machine (both hardware and software part of it). Unfortunately for us (but fortunately for the guy), he went on a 3-4 week vacation during the Christmas/Hannukah and New Year holidays, and the rest of the TMF's engineering team doesn't know how the damn thing works (let alone how to fix it).

But here is the good news. Holidays are almost over, the senior engineer is soon going to be back, and I'm sure this little glitch in TMF's system will soon be fixed. In other words/ language: No mas problemas in 2012, mis amicos.

(p.s. If this guy has quit and is gone for good, we're screwed).  

 

The remaining 2 predictions will be revealed tomorrow...

Happy New Year Everybody. 

14 Comments – Post Your Own

#1) On January 01, 2012 at 1:47 PM, Frankydontfailme (27.21) wrote:

Long Dow short S & P!

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#2) On January 01, 2012 at 11:21 PM, soycapital (< 20) wrote:

up is down and down is out

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#3) On January 02, 2012 at 9:56 AM, ath002 (< 20) wrote:

Hi Dragon LZ. I am one of the dummies you mention above, but am having some trouble with your example.

So you invest $100 in the S&P and $100 in Dow, you make $20 profit and that gives you 20% profit????

$20 profit on $200 investment is 10% profit out here in Africa, but maybe in the USA it works different. Please can you explain how you come to 20% profit.

 

Thanks in advance

Luis 

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#4) On January 02, 2012 at 3:05 PM, leohaas (32.01) wrote:

#3: the dragonLZ's math is almost correct. He uses the $100 of his original investment in a margin account, which allows him to borrow $100 against the $100 he puts in. He just did not mention the margin cost (and the risk of being whiped out). Or, considering he wrote this on Jan 1, he may have been drunk out of his mind. Or thought it was actually April 1st when the Fool is known to create pranks.

Wow, 3 possible explanations already.

Predicition #4 is actually how many companies work, so it would not surprise me if dragonLZ is right on this one...

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#5) On January 02, 2012 at 3:48 PM, JaysRage (89.07) wrote:

This is much more bold.   You've got yourself out on a limb with this one. 

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#6) On January 03, 2012 at 12:39 PM, dragonLZ (99.59) wrote:

Hi Dragon LZ. I am one of the dummies you mention above, but am having some trouble with your example.

ath002, I'm sure you are no dummy; the problem is most likely in the fact that you live in Africa and I was referring to American percentages.

I'm not quite sure how African percentages work, but I'm sure you can go online and find an African wikipedia or something like that where you can find how to convert American percentages into African percentages. 

I'm glad I was able to help.

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#7) On January 03, 2012 at 12:44 PM, dragonLZ (99.59) wrote:

leohaas, I'm not sure what you were trying to say because I stopped reading your comment after your "dragonLZ's math is almost correct".

People like you are who concern me the most. Ath002 has an excuse (he/she is from Africa), but what's yours?

If you can't figure out that 10% + 10% is 20% (just like 10 cents + 10 cents is 20 cents, or 10 apples + 10 apples are 20 apples), then I'd say you need to ask your school to give you your education money back. Of course, this applies only if you went to a private school (that you had to pay for).

If you went to a public school, well, I guess that's your excuse. :) 

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#8) On January 03, 2012 at 12:51 PM, dragonLZ (99.59) wrote:

JaysRage, I know what you mean, my man. This one is indeed a tough one. (As more days are passing after the holiday, and the thing ain't fixed yet, I'm more and more afraid the guy actually quit).

p.s.

Give yourself a pat on the back for not questioning my math. I see you are one of us "who actually get it" (if you know what I mean). There is not many of us who figured out how to make money in the market (whether it goes, up, down, or sideways. Heck, we also make money when the market's closed).

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#9) On January 03, 2012 at 4:42 PM, skypilot2005 (< 20) wrote:

 On January 03, 2012 at 12:51 PM, dragonLZ (80.59) wrote:

"Heck, we also make money when the market's closed)."

Now.

That's my kind on an investor.     :)

 Sky Pilot

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#10) On January 03, 2012 at 4:43 PM, skypilot2005 (< 20) wrote:

of an investor.

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#11) On January 03, 2012 at 4:56 PM, Eudemonic (66.37) wrote:

DragonLZ:

.. if you also invested $100 in S&P 500 at the same time when you invested $100 in DOW...

I agree that 10%+10% = 20% but I still see you investing $200. (100 in S&P and 100 in DOW) . Two $10 returns on $200 total investment is still 10% return on $200.

By doing this, your profit is now $20 instead of $10:

True, but my investment is $200 not $100.

Disclaimer: I went to a public school, which explains why I learned to question my teacher (one of the un-forseen consequences of attending public school).  

 

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#12) On January 04, 2012 at 11:32 AM, Schmacko (63.13) wrote:

dragon, you're selling yourself short by working in American percentages.  If you used Chinese percentages you'd have something like 10% + 10% = 300%*

You'd obviously want to start charging people for your advice with returns like that.

* but only for accounting/book keeping pruposes.

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#13) On January 04, 2012 at 3:01 PM, JaysRage (89.07) wrote:

JaysRage, I know what you mean, my man. This one is indeed a tough one. (As more days are passing after the holiday, and the thing ain't fixed yet, I'm more and more afraid the guy actually quit).

.....or retired

.....or created a project plan to fix it that goes into 2013 (who would know if he was fibbing?)

.....or died

.....or has acquired so many days of vacation that he is taking off for all of 2012. 

.....or is on disability

It may never get fixed. 

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#14) On January 05, 2012 at 4:46 AM, ath002 (< 20) wrote:

Leohaas, thanks for your input, it now makes perfect sense. Sadly Dragon did not read your explanation to the end, but I think thats just the way he is, no offence should be taken.

Eudomonic, if Dragon does not accept Leohaas method, then I stand with you.

anyway, am off to Wiki Africa to find out the difference between percentages in the USA and Africa. Silly me, I thought percentages were percentages everywhere you went.

Thanks to you all,

Luis 

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