Whenever I’m faced with a market like this one – rocky and volatile, with hidden wildcards just waiting to trip us up – I can’t help but think about my late grandmother, successful amateur investor Virginia Gruner, and the warning she would issue in just these situations: “Hold onto your bippies!”

As I sit here and stare at my trading screens this afternoon (Monday) – watching as central banks around the world inject billions into the global economy in an effort to blunt the effects of the spiraling credit crisis – I can just hear my grandmother issue her ever-so-familiar warning.

The Greatest Investor I’ve Ever Known

You see, my grandmother was a super-successful amateur investor.  She’d spent most of her adult life managing her household, the wife of a highly successful insurance-industry executive (my grandfather). When her husband died, my grandmother found that her family’s own finances were in disarray. So with characteristic commitment, and with a resolve I always admired, she set out to become a successful investor. She became one of the smartest individual investors most of us will ever see – and, actually, one of the best investors of any kind I have ever known.

My grandmother then set out to pass that “gift” along – to me. Starting when I was a teenager, she made sure that I always had the entire Value Line investment research series, and annual subscriptions to such leading publications as Business Week and Forbes. She wasn’t forcing this on me, mind you, but rather was sharing it with me – and in a way that made me want to learn all that I could, and be as successful at this wonderfully engaging pursuit as my grandmother.

Yesterday’s late-afternoon trading patterns suggest that her bit of wisdom may somehow be fitting to keep in mind over the next few days. I’m now hearing from traders based both here in the United States and around Europe that the $275 billion injected into the world economies by the global central banks may not be enough.

And, yet, Asia’s traders seem placated.
 
So, what gives?

I honestly don’t know. But here’s what my experience tells me should be happening – as well as what’s actually happening.

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The Global Realities

Somehow, the Euros and Americans don’t trust the system. They think that Monday’s rally is nothing more than a continuation of the short covering and limited bottom fishing that began Friday on the heels of nearly $275 billion in central bank liquidity injections

They’ve got a bad case of: “I’ll believe it when I see it.” And investors seemingly want the ECB and Fed to drop rates as a sign of good faith that things are truly behind us. Yesterday, in fact, I saw no fewer than 20 different news stories, research reports, and market essays from various people suggesting that a “Fed rate cut is in the bag” – which makes me suspect all the more that it isn’t.

Asian traders, on the other hand, seem to think that the massive amounts of money shot into the system was enough to fix the problem.

It’s the way that the Asian markets are trading that leads me to draw this conclusion – that, of course, plus the 20-plus years I’ve spent in and around the Asian markets.

The Japanese and Chinese in particular have a different cultural framework than we rely on here in the West. As a result, the Japanese have a sort of implicit trust in the government as a benevolent entity while the Chinese view it as a strict leader to be obeyed…maneuvered, but obeyed nonetheless. There are, of course, finer points to each but those are more academic than anything else.

In more practical terms, based on how the two camps (the West vs. Asia) appear to be divided in their trading philosophy right now, what we as individual investors are left with is a dichotomy: Roughly half the world’s financial system wants more “liquidity,” while the other half seems content with what it’s got.

Really Time to Go Global

So, who’s right and what does it mean for us?

That remains to be seen. I’m personally of the opinion that we have a long way to go before the extent of the damage is truly recognized. There will undoubtedly be some big names on the chopping block in the weeks to come as more light is shed on this messy credit situation. Some of these revelations will have been anticipated. But others will be huge surprises, and could well roil the markets.

Either way, this suggests to me that individual investors have yet another reason to focus at least part of their financial strategies on global investing (Wharton Professor Jeremy Siegel recently said that an international allotment of under 40% was a “disservice,” as well as a recipe for substantial underperformance).

That said, it’s clearly not enough any more to diversify by country because most of the countries, as so many people found out last week, are inextricably linked at the central banking level.

Therefore, it is vitally important to take a different approach that both lessens your risk and heightens your potential returns. Part of that approach includes lining up your money with the virtually unstoppable trends of our time. The other part suggests “an offensive defense” may be more appropriate now more than ever.

Last week’s financial shenanigans have clearly changed the rules of the game – yet again.

As I reason this all through, I can’t help but consider what my grandmother would say about this situation. The best revenge, of course, is to take advantage of all possible profit opportunities. But we all know that these next few weeks could be highly volatile, which either connotes danger or opportunity – depending upon your viewpoint.

So brace yourself for still more volatility (“hold onto your bippies!”). Then capitalize on whatever opportunities the financial markets throw at you. Look especially closely at global investment opportunities, but don’t be afraid to be opportunistic domestically, either. Be bold, but not reckless.

And have at it!

Good Investing to us all.

 Keith Fitz-Gerald

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“The Prince” has targeted China’s booming hotel sector.

If you’re a confirmed Contrarian, like me, or are merely an avid investor, you already know that I’m talking about Saudi Prince Alwaleed bin Talal Alsaud, the shrewdest and most-successful investor to come out of the Middle East. Prince Alwaleed is best known for the $590 million he invested in Citicorp back in early 1991, an outlay that saved the struggling U.S. banking giant – and that netted the prince a fortune.

Prince Alwaleed’s subsequent financial triumphs are too numerous to list here, but suffice it to say he’s become an investing legend. And now he’s back in action again: The prince is searching for investment bargains in China’s burgeoning hotel sector and has a $1 billion kitty to help finance this latest foray, according the latest issue of Forbes.com.

I’m bringing this story to your attention for several reasons – and my objective with every single one of them is to make you a better investor, with a greater propensity for making profits.
Let me explain;.

The Three Pathways to Profits

If someone offered to tell you how you could profit with virtually every investment you make, would you listen? While I can’t quite make that claim, I can offer several bits of wisdom that will tip the odds well into your favor. And the story about Prince Alwaleed’s latest business venture reminded me of most of them.

To be the very best investor you can be:

• Follow the money, and not the crowd.
• Watch the moves the “real” experts are making.
• And whenever possible, go global.

If you think that these snippets of wisdom are overly simplistic, you’ll one day discover that the best profit strategies usually are. Let’s start by studying why it’s dangerous to follow the crowd;

What Goes Up Can Also Come Down;

While researching my book Contrarian Investing back in the middle 1990s, my co-author and I made an interesting discovery: Probability research demonstrated that, as a group, stocks that have run up a very long way are more likely to decline than to continue their run. Conversely, stocks that – again as a group – have fallen a long way are more likely to reverse course and -rise. If you take a moment to really think that through, the concept makes a ton of intuitive sense.

Indeed, that’s really the entire philosophical basis for the discipline of Contrarian Investing. Members of “the crowd” are more likely to buy the stocks that everyone else is buying – the ones that are soaring right now. And the investing masses are just as likely to avoid the ones that have fallen. But it’s the stocks that have fallen that offer the biggest profit potential, while the shares that are trading at stratospheric levels are the riskiest ones to own. Simply put, the high-priced shares are the most prone to a big decline.

If you follow one of our other key strategies and search out newly developing money-flow trends, you can spotlight investments that either haven’t risen yet, or are just starting to rise. And you’ll pocket the biggest share of the profits when those shares take off, with the accelerating money flows acting as the fuel.

Watch the “Real” Experts

If you have a tough time using this kind of analysis to ferret out such opportunities, take the next best approach and watch what the acknowledged experts are doing. As an avowed Contrarian, I tend to favor value-oriented investors, including such folks as:

• Warren Buffett, the so-called “Oracle of Omaha (If you want to read a terrific book that really illustrates how this super-investor operates, and is also a fascinating biography, take a look at Roger Lowenstein’s: Buffett: The Making of an American Capitalist.
• Bill Miller, manager of the Legg Mason Value Trust mutual fund, and a fascinating and genuinely decent guy who I interviewed many times during my business journalist days (though I was never able to persuade him that Eastman Kodak Co. was a misguided play. Still, any investor who’s a genius, but is still a regular guy who enjoys shooting the breeze at a cocktail party, is aces in my book).
• Jim Rogers, TV personality, world adventurer, author of such best-sellers as Investment Biker, and a noted Contrarian who was kind enough to allow my co-author and me to adapt one of his terrific essays for the “forward” for our Contrarian Investing book. Check out the piece I wrote about Rogers just last month, and make note of the new book he has coming out late this year.
• Prince Alwaleed, whose career I’ve followed since he purchased those Citicorp (NYSE: C) shares at a split-adjusted price in the $1.50 to $1.75 range. His timing was so perfect, and his windfall so massive, that I used his Citicorp investment as a key case study in the Contrarian Investing book. The shares of the largest U.S. financial-services firm closed yesterday (Wednesday) at $49.49 each.

There are others, as well, but I was merely trying to provide a representative overview. You might well have in mind other investors whose style or philosophy is more in tune with your own approach. That’s actually a smart way to go: If you’re not comfortable with a strategy, you won’t stick with it. And changing horses in mid-stream can only lead to you taking an unwanted soaking.

Story continues below…

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Go Global

If you only take one lesson away from this report, make sure it’s this: International investments are no longer a nice bit of diversification, or a way to “spice up” your portfolio. They’re a necessity. You go global – or you get left behind.

Best-selling author and famed Wharton Business School Professor Jeremy Siegel recently pronounced that the long-held conventional wisdom on international investing should be thrown out the window. For decades, we’ve heard over and over how international investments should comprise 5%, 10% or at most 15% of our portfolio’s total value. Any more than that is foolhardy and risky, we were programmed to believe.

But according to Siegel, the truly foolhardy act is to limit our international exposure that much. In other words, the biggest risk we now face isn’t just the possibility of losses incurred when some foreign market plunges. The real risk now is the possibility U.S. investors face – getting left behind financially because most of the major global growth that will come in the decades ahead will be generated outside U.S. borders – by such countries as China, Japan, Taiwan, Korea and Brazil. We’ll even eventually start to see growth from such countries as Vietnam.
Investment advisors who stick with the old asset-allocation model are actually doing their clients a huge disservice, Siegel says.

Siegel now believes that international investments should comprise about 40% of your total holdings. Most individual investors know Siegel for his best-selling book, Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies. The book first came out in 1994, and is considered one of a handful of “must-read’ titles in investing finance. But when the fourth edition appears in December, there will be something new to look at: This edition will include a long addition addressing the international arena, and how investors must adapt their strategies to the new realities of globalization.

And Siegel isn’t alone in this assertion that global growth is a huge investment opportunity. From 2005 to 2010 alone, the worldwide value of all financial assets – stocks, bonds, CDs and other investments – will soar from $118 trillion to $200 trillion, according to projections made by the McKinsey Global Institute in a just-released report.

That’s an increase of $82 trillion, or 69%  – and in only five years. And a big portion of that increase will be realized outside U.S. borders. The longer-term projections are even more sobering for investors who have traditionally held themselves to a “U.S.-only” investment strategy. Consider some statistics recently released by the World Bank and several other researchers.

Right now, Asia and the United States each account for about 28% of the worldwide economy. Forecasters say that the U.S. share of the global marketplace will slip a bit, dropping back to 24% by 2030.
But Asia’s share of the worldwide market will double during that same stretch, reaching a staggering 55% by 2030. Think about it this way: The Asia of tomorrow will be twice as powerful as the United States is today.

It’s a transition that’s too powerful to stop. But the next best thing we can do to protect our futures and to advance this country’s standard of living is to personally profit from these trends. It’s the greatest wealth-producing opportunity most of us will ever see. Climb aboard. Or get left at the station.

The nation’s wealthy already really understand what’s at stake and are already profiting from these trends – and in a big way. According to a study by the Spectrem Group, 40% of affluent U.S. households are continuing to invest internationally, while a full third are actually planning to invest more. Their chief country of choice when it comes to investing abroad: China.

Alwaleed Redux

With the $1 billion he reportedly has earmarked for the purchase of hotels in China, Prince Alwaleed has essentially been kind enough to make my case for me. And please note that this isn’t a standalone foray: It’s just the latest piece of a broad strategy in which he’s positioning himself to profit from the newly capitalist markets emerging around the world.

According to the Forbes.com report, Prince Alwaleed is aiming to buy 10-15 hotels in some of China’s small- or even medium-sized cities over the next three to five years. The investments will be managed by his hotel-investment operation, Kingdom Hotel Investments, which is listed in both London and Dubai.

Forbes.com based its report on a story that ran in this week’s Shanghai Securities News, which interviewed Sarmad Zok, the CEO of KHI.

KHI is looking to acquire “mature” properties in China’s second- and third-tier cities, where growth rates will even exceed the quick pace of the already-soaring national economy, Zok was reported to have said.

Forbes lists Prince Alwaleed as the world’s 13th-richest billionaire, with a net worth of $20.3 billion. He has an affinity for the hotel business: He recently announced that he and Microsoft Corp. (Nasdaq: MSFT) founder Bill gates would take the famed Four Seasons Hotels private for $3.8 billion.

Forbes.com also noted that Prince Alwaleed’s recent foray into China’s hotel market follows a profit windfall reaped from a series of Chinese IPOs. Indeed, the magazine said the prince “became a habitual investor” in these deals, including the public offerings of China Merchant Bank, Industrial and Commercial Bank of China and China Communications Construction

And if you go back to my three central investing rules, Prince Alwaleed is clearly telling us that China is a market with such immense long-term potential that U.S investors can’t afford to avoid.
William (Bill) Patalon III is the Managing Editor and Senior Research Analyst for Money Morning, and is also the Managing Editorfor The Money Map Report. A published author, Patalon is an award-winning journalist with 22 years experience that included stints with Gannett Co. Inc. and The Baltimore Sun. He has an MBA in finance from the Rochester Institute of Technology.

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When Jim Rogers speaks, I listen.

If you have even a passing interest in the art of investing, you’ve no doubt seen investing guru Jim Rogers quoted in a news story, watched the bow-tie-clad Contrarian hold court on CNBC or FOX, or read the books he’s written about his globetrotting adventures, beginning with his bestseller, Investment Biker.

Because of a personal connection I have with Jim (he told me to call him that), whenever I see or hear his name, I always stop right then to see what he’s up to, and to listen to what he thinks.

You would be wise to do the same.

Sure, he’s a self-proclaimed “curmudgeon,” is opinionated, and can be dismissive of theories that don’t hold with his own – but that’s all part of his persona. In truth, he’s a terrific individual, and is one of the brightest investing minds of our time. Even if you disagree with his strategies, and don’t use his ideas, you’ll come out ahead of the game just by listening to what he’s trying to tell us.

And if you do use his ideas and strategies, you’ll come away a lot wealthier, too.

So when I saw that Rogers had spoken at an investor gathering in Singapore this week, you can bet I stopped what I was doing to find out what he’s saying and thinking about the markets right now.

And I decided that part of my role here at Money Morning, should be to share those thoughts – and my personal story – with you.

Let me explain …

The Contrarian Who Could

I was working the Eastman Kodak Co. (NYSE: EK) beat for Gannett Newspapers in the summer of 1997, and found myself in New York City for a Hewlett-Packard Co. (NYSE: HPQ) press conference.

Months earlier, I’d broken the story about H-P’s first foray into the consumer-digital-photography market with its new “Photo Smart” camera and printer system. It was a nifty, low-priced setup that had Kodak’s hugely profitable film and photo processing businesses centered right in H-P’s crosshairs. And H-P was good: innovative, nimble, technologically advanced and gifted at marketing – all the things that the Kodak of that period was not. I’d made all these points in my story, and then flew out to visit H-P out in Silicon Valley. So their marketing folks wanted to make sure I was on the invite list for their slick-and-glitzy “unveiling” news conference in the Big Apple.

My trip to New York had a second purpose, too: My co-author – a successful money manager – and I had recently put the finishing touches on our new book, Contrarian Investing, and we were to meet with publisher Prentice Hall to work out some of the details.

One big issue remained unresolved: We needed a prominent investor – preferably a well-known Contrarian investor – to write the “forward,” the essay that readers perceive as a kind of tacit endorsement of the book.

 Though the Prentice Hall folks and my co-author had all tossed around a lot of names, I already knew whom I wanted: Jim Rogers, the high-profile author, columnist, commentator and financial adventurer whose global-market insights were always unique and captivating. I always tuned in when he was a guest on CNBC’s morning “Squawk Box” program, I’d read all his books, and I regularly clipped out and saved the columns he’d written for Worth magazine and other publications.

From Soros to Shanghai

Rogers had earned degrees from Yale and Oxford, done a stint in the U.S. Army, and held several jobs on Wall Street by 1970, when he joined the firm of Arnhold & S. Bleichroeder. That’s where he met George Soros, the guy who today is typically referred to by his full name: ‘Billionare Investor George Soros.’

That same year, Soros and Rogers started The Quantum Fund, a hedge fund that’s often described as the first truly global investment fund. Over the next decade, Quantum gained 4,200%, while the Standard & Poor’s 500 Index climbed about 50%. Rogers “retired” in 1980, and since then has traveled the world (several times), written a cart-full of bestsellers, hosted several TV investment programs, and worked as a “guest professor” of finance at Columbia University’s Graduate School of Business.

Since I’d made the suggestion to our friends from Prentice Hall, I was assigned to track Rogers down and ask if he would write the forward for our book. Working from my hotel room during my short stay in New York, I somehow managed to track him down, and we made an appointment to talk by phone.

We hit it off right away.

It helped, I think, that I’d read so much of his work (and was actually able to cite several of his columns by their title, as well as name the magazine they appeared in), that I’d recently returned from an extended reporting trip to China, and that I’d actually invested in one of his emerging markets stock recommendations, a Chinese poultry company that also manufactured motorcycles.  He actually gave me quite a bit of time, and we talked about many things besides my book and the needed forward. Even so, it seemed the conversation ended far too soon.

Needless to say, Jim Rogers is a super-busy guy, and gets hundreds of requests – perhaps thousands – but I think he wanted to help out a young journalist and aspiring author, and he agreed to let us to adapt and update one of his essays for use as our forward.

And the one we agreed on couldn’t have been any better had it been specifically written for our book: It was a perfect representation of his view of the world, and it meshed just as well with the message my co-author and I had spent more than a year researching and writing to bring to light.

It’s also the best piece of Contrarian investment advice an investor will ever get. The title of the Rogers essay that appears in our book: “Sell Euphoria, Buy Panic.”

An Investment Guru You Can Bank On

Unlike the “experts” that I’ve sometimes labeled as “celebrinvestors” – whose theories, strategies and recommendations are routinely changed so that they dovetail into the newest “flavor-of-the-month” investment theory – Rogers’ investment philosophy has always been consistent, clear and straightforward.

Overseas shares will beat U.S. stocks for years to come. China will continue to grow into a world superpower, bringing Asia along with it. There will be bumps along the way, but the long-term opportunities remain. And commodities may be the very best investment opportunity individual investors will ever find.

Many of these messages were repeated in Singapore last week, when Rogers spoke at a Nomura investment forum.

For instance, as he told his audience last week, Rogers continues to say that “China is the next great country in the world – whether we like it or not. And a lot of people in the West do not like it that China is the next great country in the world,” citing the work ethic of that country’s emerging consumer class, as well as their propensity to save.

That statement really illustrates why Rogers is one of the great investors of our time.

For one thing, where most investment strategists try to beat the market by recommending a U.S. transportation stock this week, a Canadian telecom stock next week, and a British consumer-staples company the week after that, Rogers looks at broad-based trends – trends that are fueled by powerful, unstoppable, global forces – and then fashions his investment thesis from that analysis. Even if you don’t want to act on his insights, you’ll learn an awful lot about what’s happening beyond the U.S. borders just by listening to his consistent, eloquent mantras.

A second point, which his comment about China makes completely clear, is that Rogers doesn’t care what others think of his analyses. He’s not going to sugar coat his views, or otherwise alter them just because “a lot of people … do not like it.”

Frankly, he doesn’t care. He sees his role as one of informing and teaching us often-dullard Americans that the axis the world spins on doesn’t go through Wall Street anymore.

Indeed, Rogers has a new book coming out that targets this point in a most-specific way. The book, A Bull in China: Investing Profitably in the World’s Greatest Market, is due out in the first part of December.

I can personally vouch for the fact that Rogers has been predicting this China boom (I use that term broadly to include Asia and the world’s other emerging economies) since 1990, when he and his girlfriend of the time circumnavigated the globe via motorcycle, a trip that spawned Investment Biker. That’s about the time I started following Rogers’ work, including his big-picture essays that ran in top investment magazines.

Some of those essays detailed the impact all this growth would have on commodities, which is one reason that Rogers has been a longtime commodities bull. The profit opportunities from the commodities markets will far outstrip the money that can be made in stocks and bonds, and isn’t a playground that’s restricted to the institutional investors and investment bankers of Wall Street; Rogers believes individual investors can profit from commodities, too – very much a Contrarian stance.

Rogers has certainly called the commodities boom perfectly. The thing is – and I’m not taking anything away from Rogers, for he’s a brilliant guy – soaring prices for oil, metals and other commodities is a logical result of the explosive growth in China and Asia and was there for anyone to predict and to see. But it’s the systematic way in which Rogers analyzes investment opportunities – and his ability to see the linkages and relationships between different markets and different asset classes – that sets him apart from most other investment “experts.”

We here at Money Morning approach our role in much the same way. We know that most global growth in the years to come will be outside the U.S. borders, and that those who embrace this reality and invest accordingly will amass real wealth. Those who refuse to accept this new global reality will end up facing some very lean times. So we follow worldwide money-flow trends of all types, analyze the effects we expect those capital flows to have, and then use those insights to bring you the best long-term profit opportunities that we’ve discovered.

During his speech in Singapore last week, Rogers said he thinks the shares of China-based companies are overvalued, especially since the Shanghai Composite Index is up more than 35% since the start of the year – and has actually been up by as much as 62%. While Rogers says that he isn’t selling his China holdings right now, he also says he wouldn’t add to his positions right now.

But Rogers said that if China’s stock market fell by 40% or even 50%, “I would increase my position in a big way,” because the long-term growth prospects are so solid for that part of the world.

Rogers did discuss one of the substantive moves he’s making to his investments. He told listeners that he was selling stock in Wall Street banks because he believes the housing slump will continue. And he suggests that investors buy into sugar as a way to enter the commodities arena, noting that agriculture is a very promising sector for investors considering new commodities investments.

“Financial companies, stockbrokers, investment banks … I am short. I am short financial-services companies, mainly in America. I am short [U.S. mortgage-market-maker] Fannie Mae (NYSE: FNM),” Rogers told journalists in an interview that followed his address to investors.

During that same interview, Rogers also said that, in his opinion, the U.S. financial sector offered the best opportunities for profit by investors who want to sell stocks short. That’s because there’s always a price to pay for Wall Street’s excesses and because “the problems with the housing market have a long way to go in the United States. Probably more so than in any other country. But the excesses in the world economy are on Wall Street – investment bankers.  Those guys are making vast fortunes [and] that’s not the way the world works.”