One American Analyst's Winning Aussie Investment Idea

"Australian house prices could decline by more than 5 per cent in 2012 if China's economy experiences a soft landing with GDP growth at about 8 per cent." - ratings agency, Standard & Poor's

The problem with mainstream thinking is that it only joins the dots after an event.

In June 2010, the Age reported, "Despite the high debt levels, Standard & Poor's said the housing market's robust fundamentals would 'continue to support the housing market'."

It's a point we've made many times. Mainstream economists only look at the surface of an issue. They rarely think about the layers beneath. Or the side effects of an economic action.

That means they're always playing catch-up to an event. As any top investor will tell you, that's the last thing you want. As it means you're more likely to buy at the top and sell at the bottom.

But if you're ahead of the game, that's when you can bank the rewards. It's how a good pal of mine picked three stocks that have made big double- and triple-digit percentage gains in less than 12 months. 
How did he do it? Simply by thinking ahead and acting before everyone else caught on...

Gains of 72.9%, 185.7% and 217.7%

In February 2010, this ahead-of-the-game analyst wrote:

"My strategy... is to largely stay OUT of the stock market. The only reason to be in it is when you have a chance to make either a very safe, low-risk return, or a very large speculative return for a small amount of money."

In this case, the analyst (Australian Wealth Gameplan's Dan Denning) was looking at a"very large speculative return". It was in an industry few others in the Aussie market had looked at - shale gas.

To make the big return, Dan had three specific stocks in mind.

Today, those stocks have made gains of 72.9%, 185.7% and 217.7%.

But despite the good run, there could still be a lot more to come. When Dan picked two of these stocks last June he wrote:

"For the risk-averse investor who still doesn't mind having a shale punt, Santos may be the goer. But it is not the kind of company that can give you a 10 to 1 return. And since I think that's genuinely on offer... Let's look at the two recommendations I'm making..."

Dan didn't tip Santos. But he did tip two stocks that are up 185.7% and 217.7%.

Timing the Market

But here's the thing. When you take a punt on an ahead-of-the-game idea, you shouldn't think you'll get it right the first time.

Sometimes you need to take a couple of stabs at it.

Dan had originally written to Aussie investors about shale gas in May 2009. The story was much the same as when he wrote about it over a year later. The only difference was the market wasn't ready for the shale gas story in 2009.

That's why contrarian investors need patience. Just because the market doesn't react to an event as you expect, it doesn't mean the idea is wrong. It may just mean your timing is off.

That's why Dan stuck with it. Because he knew the shale story would hit the Aussie market for three reasons...

First, the U.S. had already exploited shale gas reserves. The U.S. had known about shale oil and gas since 1910.

Second, according to the U.S. Energy Information Agency, Australia has 396 trillion cubic feet (tcf) of recoverable shale gas. To put that in perspective, China used around 4.4 tcf of natural gas last year.

By comparison, the U.S. uses around 22 tcf per year.

Assuming most gas exports will go to China, Australia has almost a 100-year supply of gas. That's based on China's current usage.

Of course, if the Chinese economy grows as much as most expect it will, the demand for natural gas will grow too. That's good news for gas explorers and producers.

Investing Ahead of the Curve

And third, Dan knew shale was a big story was because he had told U.S. investors about it in October 2005.

Back then, he wrote:

"If the U.S. government is eventually going to pump billions of dollars into the development of the shale industry, with the goal of national energy independence, I want to figure out who's going to benefit the most...

"...I'd rather be ahead than behind on the shale curve."

The shale gas story has been a winner for U.S. investors. And now it's set to be a winner for Aussie investors too.

(In fact, thanks to Dan, we jumped on the shale gas bandwagon last year in Australian Small-Cap Investigator. The stock we tipped is up 66.7% since.)

If Dan's right about two of his stocks becoming 10-baggers (that means rising 1,000%) there's still much further for these stocks to go.

You can find out more on Dan's research and current stock tips by clicking here...

Cheers.
Kris.