What to Invest in When You Don’t Know What 2017 Will Bring

Well, that went quick. Reminiscing back on 2016, resurging resource prices, Brexit, a gold rally, and Trump’s victory stand out for their impact on markets. What will 2017 hold?

Will it be a stellar year for stocks? Or will everything come crumbling down?

If you listen to Jim Rogers, co-founder of the Quantum Fund, you’ll probably think we’re in for a fall. Rogers has gone on record as stating, ‘A $68 trillion “Biblical” collapse is poised to wipe out millions of Americans.’ And if millions of Americans get ‘wiped out’, it won’t be long before the pain is felt here in Australia, too.

Many other investors and analysts sing a similar tune to Rogers. In all honesty, it’s hard to find many that hold the opposite view.

But controversial economist and colleague Phil Anderson believes our market is on the verge of booming over the next few years.

So who do you believe?

To help make up your mind, why not look at the state of the global economy?

Year-to-date, gold, crude oil and most global equities are up. But so is sovereign debt, bonds and real estate (in Australia) — enough to entice investors to chant ‘bubble’.

Taking all this information into consideration, should you be bullish or bearish? Will asset prices continue to climb? Or will they collapse?

Economic data is so abundant that you could make a case for being bullish or bearish at the same time.

Instead of worrying about the unknowable, why not focus on opportunities within the market?  Jumping in or out of stocks because of sentiment is the quickest way to nowhere…not to mention a mountain of brokerage fees.

If you asked me what the market will do in 2017, I would say I have no clue. But if you asked me: Will there be opportunities in 2017? I’d nod my head until it fell off.

It might surprise you where many of these opportunities are. You see, the best investment for 2017, in my opinion, was the best investment in 2016.

Small stocks provide the biggest gains

How can you make returns of 900% or more in a single investment? How can you find growth in the market when it is tracking sideways?

The answer? Small-cap stocks. I know because I’ve seen it firsthand while working with Sam Volkering on his advisory service, Australian Small-Cap Investigator.

Sam is a genius when it comes to picking small-cap stocks. His 2016 recommendations alone have returned an average of 32.5% for his subscribers who bought every stock on the day of the recommendation. That’s including the winners and the losers. Over the same time, the ASX 200 returned a measly 2.75%.

And across Sam’s entire list of active recommendations (including 2016), his average returns are 63.22%!

Now, I should note that not all the stocks Sam has picked have been winners. I said he’s a genius when it comes to small-caps, but he’s not a wizard! Some of his recommendations are down 30%, and even 40%. But these losses are more than made up for with multiple investments yielding triple-digit returns.

One stock is bordering on being an 11-bagger. That means it has almost climbed 1,000%!  You won’t get that with an index-tracking ETF.

To find out how Sam does it, click here.

Of course, you should be aware that the risk of investing in small-cap stocks is significantly greater compared to blue-chip stocks.

Unlike blue-chips, small-cap stocks are not reliable, cash-generating machines. They may not even be making a profit. It’s entirely possibility for a small-cap company to crash and burn, taking some, or all, of your investment with it.

That’s why you should only trade what you’re willing to lose. Using stop-loss or trailing stop-loss orders can also help reduce losses when they start to run down. And it’s good to spread your ‘punting money’ around a number of small-caps, and not just a single stock.

It’s impossible to pick nothing but winners, but there are measures which you can take to eliminate as many duds as possible. That involves doing your homework. You won’t always pick winners; no one will. But if you research extensively and use a bit of common sense, you’ll be well ahead of the crowd, who tend to invest in yesterday’s headlines.

You should also have the following questions in the back of your mind. Do they have a product or service which is demanded? Does the company have the resources to scale up? Do they have enough cash to get it done? And, maybe most importantly, does the share price have the potential to double?

Taking on a second job

Potential returns are huge for small-cap stocks. However, it’s not all that easy picking winners among the bunch. On the contrary. I believe it is much harder to find potentially great small-caps than it is to find great blue-chip companies.

Investing in small-caps will often lead you to make assumptions. You might need to assume future profits when there are currently none. You might need to predict the future success of a product or service when it is still relatively new. You may even need to assume a trend will continue.

Above all, you need to have enough evidence to believe the company can generate and grow revenues and profits into the future.

I’m not saying you need to have a degree in forecasting, though it wouldn’t hurt. But researching, investigating and analysing does take a lot of time. If you already have a full time job, it could feel like you’re taking on another one. This is where Australian Small-Cap Investigator can be extremely helpful.

Sam does all the leg work, presenting the stocks that he thinks will grow tremendously in the future. He lays out his research, findings and reasoning for why he thinks a particular stock has the potential to double. If you agree with him, then great, invest in his recommendation. If you don’t, then wait for his next tip.

Simple as that.


Härje Ronngard,

Contributing Editor, Money Morning



Money Morning Australia