***Compounding revisited...

*** Who's in the know?

*** The spring loaded stock market... and more...

From somewhere behind the piles of paper on the desk of Gary Booysen…

Dear Investment Academy Reader,

It’s been a manic week in the office and on the markets. I think no one can possibly lament the loss of Aiden more than me, the man who's taking over his responsibilities. I hope that my feet are big enough to fill his enormous, sometimes dancing... shoes. But as one door closes another opens. Aiden might be gone, but the new website has arrived!

A question of compounding

We talked about the magic of compounding in last Wednesday's issue and one of our readers wrote in with a question. After seeing the massive profit difference between a simple interest investment at 11% and an investment compounded at 22%, she wanted to know where she could get her hands on an investment that'll show 22% these days. Since we love hearing from our readers, especially if it’s to sing our praises, I feel compelled to furnish her with as full an answer as possible.

As I’m sure she, and all of you, know interest rates are falling. This makes money market rates of 22% impossible to find. Tito's begun scheduling his Monetary Policy Committee meetings monthly now (instead of every second month), in the hope that, by  monitoring the situation more closely, South Africa might stave off the more serious effects of the downturn. Our analysts are telling us that monthly rate cuts are imminent, perhaps in the ballpark of 100 basis points (1%) per meeting.

So where can you currently find inflation beating investments?

I’ll tell you, but honestly, I'm not even supposed to be saying this: The only way I can slip this info through to you is by claiming I'm "new" to the Investment Academy team and didn’t know any better. I've literally inserted this paragraph after all proofing's been finished! What I want to tell you about is one of our top trading services. It’s called Stockmarket Sleuth. Membership is strictly limited to 1,000 members who receive exclusive tips from HOT investment analyst Werner Robberts. One of his hot tips is showing a gain of 69.76% and it's still open. This guy’s on FIRE!

But back to what I was saying... Tito has a mandate that states that the purpose of South African monetary policy is to target inflation. Though Tito and his team have effectively curbed inflation, it actually rose to 8.6% in January! If he wantonly lowers rates in order to stimulate the economy, we could see massive inflation in the near future. If inflation becomes rife and we see it touch previous levels of around 15%, the best thing to do would be to hold assets.

Yet, if he doesn’t just lower rates willy-nilly, we’ll see capital flow towards its highest return. Or put more simply - money - in the form of direct foreign investment, will flow towards countries with higher interest rates. With foreign money flooding into SA, our capital strapped industries will have welcome relief, projects will resume and the economy will recover. Either way, the international capitalist system will stave off the effects of tampering ministers seeking to control the real economy and deliver us the most efficient results and that's why...

The stock market's spring loaded, it's time to get in and enjoy the ride

Remember, the stock market's always shown the highest rate of return over the long-term compared to any other asset class. And this is independent of when you got in! But truly massive gains are always a function of where you entered the market. With things looking more and more as if we’re approaching rock bottom, there's no better time to begin investing.

Today, I was going to talk to you about preference shares, but I got a bit sidetracked with South African monetary policy. Next week I promise to begin exploring preference shares and how they could be the soundest, safest, most rewarding investment you ever make.

Until next time,

Happy investing,

Gary Booysen
For the Investment Academy