The Key to This Stock Market: Invest Like You’re Rich

We told you to watch for the breakout.

Overnight the US S&P 500 closed at a record high.

And yesterday the Australian stock market closed at its highest point since 2008.

That was when the market was on the way down.

But now the market is on the way up.

How much further can it go? Is this the start of a move much higher or is it the final burst before stocks stall and crash?

Here’s how the evidence lines up…

Most of the talk over the past year has been about the bad state of the resources sector.

Smart analysts have said China’s best years are behind it. They’ve said that this will mean bad news for resources stocks.

We wonder how they’ll explain this report from the Financial Times then:

‘BHP Billiton mined a record amount of iron ore in the 12 months to July, beating its own forecasts, and said production would expand further in 2015 as the company squeezes extra capacity out of its existing infrastructure.’

So, let’s get this straight: China’s economy is so bad, and the Aussie resources sector is so hopeless that BHP Billiton [ASX:BHP] mined a record amount of iron ore!

Something doesn’t add up. It can only mean one of two things. Either the market has got it wrong, or the analysts and commentators have got it wrong. We know which one we’d bet on.

Rich stocks getting richer

There’s no doubt that all the cheap money from the central banks is continuing to flow through to the underlying economies.

It’s showing up in rising house prices, rising stock markets, and in some cases even rising commodity prices. And that’s flowing through to higher production rates.

It’s all part of the evidence to support our view that a new surge in emerging markets is about to begin.

And if you’re looking for a sign that things are on the up, look no further than the luxury market.

As China Daily reports:

‘After a slight dip in the Luxury Consumer Price Index last year, it rose by 4 percent in 2014, according to a Hurun Institute report released on Tuesday.

‘The LCPI was also 1.7 percent higher than China’s overall CPI released released by the National Bureau of Statistics in June. Over the past eight years, the LCPI has risen 70 percent, while the national consumer price index is up only 29.2 percent.

‘The main factors resulting in the rise of LCPI have changed over time. This year, the spending was mainly on luxury property, yachts and jets, as well as education. Last year, however, the most significant categories were luxury travel, accessories and skincare products, and automobiles.’

The report notes that luxury property prices have risen the most, with prices rising 12.6%.

This isn’t surprising. We’ve shown you before how Western luxury brands have generally outperformed the market. The chart below highlights this:

Luxury jewellery firm Tiffany & Co [NYSE:TIF] has gone up 476.9% since 2009 (blue line).

Luxury goods and drinks firm LVMH Moet Hennessy Louis Vuitton [EPA:MC] has risen 212.6% (red line).

And top end US department store chain Nordstrom Inc [NYSE:JWN] has piled on 457.2% since 2009 (yellow line).

Invest like you’re rich

If you hadn’t figured it out already, when central banks print money (aside from the government) those who benefit the most first are the rich. That’s because they’re usually the people who own the most assets and the most debt.

The printed money helps boost the asset prices of the rich — property, shares, art works, and so on.

And the printed money helps cut the financing costs of the rich — helping them to finance property, shares, and art works at a lower cost.

The same picture is playing out in China. China’s mega rich are spending up big in the same way that the West’s mega rich are spending up big.

Being rich…it’s nice work if you can get it.

Of course, we’re being flippant. But there is a serious point. This factor is exactly why we say that investors can’t afford to stay in cash.

Even if you’re not rich, you have to invest as though you are rich. We doubt if there is a single rich person in the world (we’re talking billionaires) who only holds cash as an asset.

The rich invest in assets that they know will earn them a good income and capital growth as central banks keep printing money. That means investing in businesses and property that generate an income.

It doesn’t mean putting your head in the sand and just holding cash and gold.

Here’s how the rich do it

So how do you play it?

It’s not hard. You play it just like the rich play it.

Now, that doesn’t mean that you should give up your job and go out to buy a business…then again, why the heck not? If that’s what you want to do, who are we to talk you out of it?

The point is, if setting up and running a business isn’t your game, invest in someone else’s business.

That’s what the stock market is for. You find a business (or a handful of businesses) that you like and then you invest in it by buying shares in the company.

If you’ve picked the right company, then you stand to get capital growth and earn a steady income.

Or if it’s a speculative stock then maybe you’ll just get a whole bunch of capital gains. That’s the beauty of stocks. The Australian stock market alone has around 2,000 businesses that you can invest in directly.

On any given day at least one of those stocks just has to be a worthwhile investment.

That’s why we don’t buy the argument that investors should wait for a crash and then buy. Why wait? There are great opportunities now. One of the stocks we tipped in 2012 is now up 575% (that’s right, it’s the same stock as the one we told you about yesterday that had gone up 551%…yesterday was another good day for it).

Our experience tells us that those who say they’re waiting for stocks to fall will never buy stocks when they do fall. They had the chance to do that in 2009, but they didn’t take it.

Because of that, they’ve missed out on some terrific gains.

The market is hitting new highs. Many will say that’s a danger sign. They’re wrong. It’s an opportunity. Take it.

Read the rest of this article at Money Morning