Profiting from the Clientele Effect
By Jim Nelson
November 19, 2008
Clientele Effect: The preference of an investor or group of investors for buying a particular type of security.
— BNET Business Dictionary We've seen a run up of banks, real estate, and commodities, just to see all three crash in unforgettable fashion. Now, investors are a little more skeptical…at least, you'd think so… Recently, daily rags like Wall Street Journal and New York Times have run articles about the run up of SUVs in the past few months. Any normal, intelligent, even skeptical person would say, "Don't you people remember the first half of 2008?" Investors are a fickle bunch, aren't they? So the question remains: Who would buy an SUV after oil and gas prices hit their all-time highs just a few months ago? ********************************** Oil at $150 per barrel and gasoline at $8 a gallon or more… The oil is running out. It's as simple as that… But that's not what you hear from so-called experts. If you ask government officials, our intelligence agencies and even powerful Wall Street financiers, they tell you the opposite. Find out what they're not telling you in this special report… ********************************** Well, obviously many of these new-SUV owners are assuming energy prices will remain low. After all, July's $147-per-barrel of oil was a fluke. It was all caused by oil speculation and shady deals, and had nothing to do with the two-million-barrel gap between global supply and demand. I mean just because the world uses 87 million barrels of oil every day, and it can only produce a maximum of 85 million barrels shouldn't mean higher oil prices. Or if you prefer, as Fatih Birol, the International Energy Agency's chief economist, says we only need to "[bring] four new Saudi Arabias on stream" over the next two decades. That shouldn't be a problem, right? If you aren't detecting the sarcasm, I apologize. I'll be perfectly clear. People, who think oil and gas prices will stay cheap, are absolutely nuts! There is nothing indicating cheap oil prices in the near future. So, the second question that pops up: Why would people think that? The clientele effect is the emotion-based reasoning behind why consumers buy certain things. The most obvious example of this is dividend investing. Many income investors pick which dividend-paying companies based on a number of criteria. The most common is the consistency of the company's dividend. If a company pays a dividend for 25 years straight, there's a good chance a large portion of its investors are fixated on that dividend. Say, for instance, the company cuts or suspends its dividend. Investors will certainly flee immediately, causing the share price to fall. That's the clientele effect. The reason for investing changes. Therefore, you must sell. It also works in reverse. Say the company dramatically increases its dividend. Investors will flock to the company boosting share prices. ********************************** Closed to New Investors for the Last 6 Years — Now Open Again... In 2002, the same royalty "paycheck program" that paid out $50 for every $1 invested...decided to shut the door to new "members." In 2008, that door is open again...and it just got easier than ever to "make money while you sleep"... But there's no telling when it could close again, so check it out before it's too late… ********************************** The rationale for the groupthink is simple. If a company is optimistic about its operations and future growth, it will typically increase its dividend. Likewise, if a company is going through a rough patch, or expects to shortly, it will cut or suspend its payments. That's the long definition of the clientele effect. So what does this have to do with crazy SUV sales? SUV buyers are viewing the recent drop in oil prices as an indicator of future prices. They are "investing" in brand-new SUVs because they feel that prices will stay cheap enough to cost effectively drive one. The opposite occurred not too long ago. In early July, $150 oil was all but here, and SUV prices were slashed in half. Dealers couldn't give them away. GM and Ford's recent losses prove that. So, how can you benefit from the clientele effect? Simply buy before a positive indicator, and sell before a negative one. No one is perfect at guessing the market, but you don't have to be. You have to look at all the facts available. Even better, you can join us at Penny Stock Fortunes by and let us do the hard work for you. Check out this free report to learn more… Sincerely,
Jim Nelson P.S.: Dividend investing is an area that we'll continue to follow over the coming weeks. So, be sure to keep an eye out for a special report called Retirement Plan B that will be headed your way soon. Editor's Note: As always send any questions or concerns to us at jim@pennysleuth.com.
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