Embrace the Fact That You Actually Know Nothing

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Happy New Year everyone!

Greg Canavan here. In case you missed the announcement at the end of last year, I’ll be writing regularly at Money Morning in 2017. Jason Stevenson is now taking over at The Daily Reckoning. But he’s still on holidays and will be with you tomorrow. So you’ve got me for one more day…

In writing The Daily Reckoning, I focused a lot on the macroeconomic picture. I highlighted the bizarre world of debt-based economics, and Australia’s position in it.

I will still do that to some extent. But there are always opportunities among the risks. And it is these opportunities that I really want to bring to you in Money Morning. You can join me over at Money Morning by clicking here.

Or, more accurately, I want to show you how to spot the opportunities and know when to ignore the risks that are ever-present in this twisted financial world that we live in.

More on that in a moment.

But, for now, I know that you’re probably still on holidays. We need to ease into the new year.

So I’ll start with a tip…

I’m currently holidaying with family in Adelaide. My wife’s parents live on the coast, in a suburb called Marino. From the rocks at Marino, you sweep down past Seacliff and into Brighton. It’s a few kilometres of white sand, lapped by aqua blue waters.

In other words, it’s pretty sweet. And there is no one around.

Compare that to the East Coast swarm. Last week I saw an aerial photo of Bondi Beach smothered with people…it looked like a summertime nightmare.

I lived in Bondi years ago, when it was semi-affordable. I hardly ever went to the beach. Too many poseurs. But when it was hot, I could at least walk across the road and jump in the water.

But if you came from afar, the parking was impossible…and expensive.

That’s pretty much the case up and down the coastline of Sydney these days. And Melbourne.

Actually, in Melbourne recently, swimming in the beaches has been riskier than buying gold futures contracts. The recent deluge there swept a whole bunch of unwanted goodies into the water. As The Age reports:

Melburnians looking longingly at the warm-to-hot weather forecast for this weekend had better hope for no deluges of rain before then, or swimming will be off limits at the city’s beaches.

The Environment Protection Authority says last Thursday’s heavy rains swept faecal matter from roads and waterways into city beaches.

Which brings me back to a summer in Adelaide…

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Yesterday, I took my kids to the beach. We got a park right in front of the water. There were no parking meters. The water is tropically warm. Perhaps a little too warm, actually: There have been some shark sightings.

As Adelaide is in the Gulf of St Vincent, it doesn’t get the ocean swells, so the water is perfect for kiddies. And, as I mentioned, there are no crowds.

That’s probably because there is only a limited economy here, and everyone has gone to Melbourne or Sydney looking for work. That’s certainly the case with my wife’s brothers and sisters. She has three siblings. They live in Sydney, London and New York, working in law and immunology.

But the lack of hustle and bustle makes it a great place to visit if you want to come back the other way for a break. If you’re looking for a relaxed summer holiday, in a place with good food and coffee, it’s not half bad.

You just have to hope that the place isn’t searing with heat and raging with fires when you do come. It can get pretty hot here…

But not today. It’s headed for 28, and I’m headed to the beach to drag my girls around on a boogie board like a packhorse for a few hours. Can’t wait…

But before I go — and before letting you get back to your holiday — let me impart one key insight that you will increasingly notice as a theme if you join me at Money Morning this year.

That is, I urge you to look for the investment opportunity that doesn’t make sense.

It didn’t make sense (at the start of last year) that oil and commodities would be among the best performers in 2016. It didn’t make sense that the gold price collapsed following the election of Donald Trump in November.

It didn’t make sense that, from the perspective of early 2016, US stock markets went on to make new all-time highs by the end of the year.

Remember this: Markets are not meant to make sense. They only make sense in hindsight.

And after something has made sense to you — that is, after you have rationalised it and you feel comfortable making an investment — it is nearly always too late.

To get around this problem, you need to change the way you think. You need to embrace the fact that you actually know nothing. When you embrace ignorance, you won’t get locked into some erroneous way of thinking. You won’t feel the need to be ‘right’.

I’ll help you along this path from time to time. One of the things I do to remind myself that I haven’t got a clue about anything is to listen to the market. I let the market guide me, rather than imposing my views on it.

I do this by looking at stock charts. You may have seen my mates over at Money Morning Trader do the same thing. I highly recommend this service. It will make you a much, much better investor by learning to look at the charts.

It’s a new year. Use it to wipe away your biases and preconceived notions about the way things ‘should’ work. If you do that, you’ll give yourself a much better chance of making money in 2017.

Greg Canavan,
For The Daily Reckoning

Greg Canavan
Greg Canavan is a contributing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.
Greg Canavan

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