Buyer Beware

[fourthirtysix]

Each time I want to invest, I read the following advice from various places:

- Bonds? No- Inflation is going to rage.

- Stocks? Overvalued! Overbought! All this global liquidity has inflated prices. It's going to come crashing down.

- Gold? It provides no dividends or interest, has already increased a lot, and will not be a bubble. You could buy some, but have missed out on gains over the past few years. Plus, people recommend holding 5-10% gold. Where does the rest go?

- Commodities? same as gold.

- Currencies? Dollar is depreciating, Euro is already high and I can't find an ETF that sells Renminbi... meanwhile, the Yen might be a good play, but it returns a paltry 0.5%, if that.. and currency is not long-term strategy for lil' ol me.

Housing? Don't even think about it.

International Stocks? Will take a big hit if and when the US markets take a nose dive of several thousand points. China stocks in a major bubble. Europe slowing from high Euro valuation..

Conclusion: There are no good deals in the markets these days. Inflation is going to kill you and there's no escape. Thank you for playing.

[jk]

Re: Buyer Beware

this is what i wrote in another thread when someone said he'd missed the boat on gold

i think gold is still a buy, but it might get cheaper at some point. the first question you need to address is how much cheaper you think gold might get before it gets more expensive. the second is how underallocated you are.

if you think gold has a good chance to sell-off a lot, then you might hold back altogether, and wait for a better entry. if you think, on the other hand, that there's a strong possibility it will never get more than, say, 10% cheaper, nominally, then you might want to start to purchase some.

john hussman once wrote that if you felt underinvested in something you should immediately buy 40% of your intended position. this gives you some exposure and balances your potential regrets - regretting not buying more if it takes off, regretting buying any if it gets cheaper. my addition to this advice would be to then wait a fixed period of time -- say 3 to 6 months -- before re-evaluating your situation. if you are at that time feeling underallocated, buy 40% of the position you'd need to purchase to get full exposure. repeat as needed.

first i suggest you forget what you wish you'd done in the past and just think about what you'd like to own NOW, given your own time frame and risk tolerance. if i were significantly younger and had more risk tolerance i'd have some exposure to international equities now, in spite of the risk. but i'm not younger so i don't. think through the scenarios and their probabilities, and think hard about your willingness to ride a position through a drawdown. then scale into what you'd like to own.

[GRG55]

Re: Buyer Beware

Each time I want to invest, I read the following advice from various places:

- Bonds? No- Inflation is going to rage.

- Stocks? Overvalued! Overbought! All this global liquidity has inflated prices. It's going to come crashing down.

- Gold? It provides no dividends or interest, has already increased a lot, and will not be a bubble. You could buy some, but have missed out on gains over the past few years. Plus, people recommend holding 5-10% gold. Where does the rest go?

- Commodities? same as gold.

- Currencies? Dollar is depreciating, Euro is already high and I can't find an ETF that sells Renminbi... meanwhile, the Yen might be a good play, but it returns a paltry 0.5%, if that.. and currency is not long-term strategy for lil' ol me.

Housing? Don't even think about it.

International Stocks? Will take a big hit if and when the US markets take a nose dive of several thousand points. China stocks in a major bubble. Europe slowing from high Euro valuation..

Conclusion: There are no good deals in the markets these days. Inflation is going to kill you and there's no escape. Thank you for playing.

All valid observations above (except for the "no escape" clause in the conclusion). I am, perhaps incorrectly, reading into your note that you are a fairly new investor?

Supplementing jk's advice, recognize that the observations above are entirely based on observing the investing climate as it exists today. People tend to react instead of trying to anticipate - they take actions today based on what they wish they had done a year or two previous. The investing climate changes constantly but, just like global warming, not necessarily very quickly.

Consequently here's something I try to always keep in mind:

"Great investors sell (to the market) patience, and the willingness to accept short-term discomfort by taking the opposite side of exactly those trades that speculative, impatient investors most desperately want to make" -- Dr. John Hussman --

Everyone needs to develop their own investing "style" and discipline. To deal with your immediate dilemma expressed above, you may wish to ask yourself a couple of questions:

• What's the climate going to look like in a couple of years, and what actions should I be considering today to take advantage of that?;
• What are impatient investors desperately after today, and is there a sensible way (adequate risk adjusted reward) to take the other side of that trade?

Hope that's of some help.

[fourthirtysix]

Re: Buyer Beware

Yes, you are correct that I'm a very novice investor.

That said, while acknowledging that nobody can predict the future, I can read enough news and commentaries to make some educated guesses that:

- inflation will rise slowly but surely in the medium to long term
- taxes will have to increase to pay for unfunded liabilities in the future
- US benefits will be cut in the future
- money will be printed to pay for unfunded liabilities in the future (see inflation), and the dollar will slowly depreciate over time

- the population will continue to grow, as will demand, in the medium-long term
- oil will eventually peak in the next 50 years, or may have already peaked

- the current global financial situation is marked by a lot of imbalance and craziness with 1) "innovative financial products" that nobody understands, 2) central banks manipulating the system and 3) disproportionate levels of consumption by the west and industry/production shifting to the east.

With all that said, I agree with those who say that Oil and Commodities are good long term bets. Same with hard assets and all things that fight inflation.

However, housing is out of the picture for a few years. I'm hesitant to buy into the Oil industry, because a recession would bring the stock prices of oil companies down, and a democratic shift in the US government could also damage Oil stocks over the next 5 years.

It feels like establishing a position in anything these days takes a great deal of courage given the volatility!

Thanks for the comments

[touchring]

Re: Buyer Beware

Ok, i don't know if this is wise, but being from the emerging markets, i see everyone very bullish and dumping in all money into stocks. This is getting euphoric. Everyone believes that China has too much money and long term boom is guaranteed. US money is running to Asia, etc, etc.

But at the very least, if you throw in all your money into Asian stock funds in September, you would have made a pile by now.

[metalman]

Re: Buyer Beware

Ok, i don't know if this is wise, but being from the emerging markets, i see everyone very bullish and dumping in all money into stocks. This is getting euphoric. Everyone believes that China has too much money and long term boom is guaranteed. US money is running to Asia, etc, etc.

But at the very least, if you throw in all your money into Asian stock funds in September, you would have made a pile by now.

true of every bubble. don't forget to sell!

[raja]

Re: Buyer Beware

fourthirtysix,

Maybe now is not the time to invest . . . .

I'm a novice investor, too . . . and what I've noticed is that the "experts" are all over the place with regard to what's going to happen. All these guys (they all seem to be men) have much more experience and knowledge than I do, and if they can't figure it out, I certainly don't expect that I can.

My goal is to lose as little as possible in these uncertain times.
I'm just treading water now, waiting for a time when the good investment choices seem more clear.

For example, right now the housing market is falling, and it looks like that trend will continue.
I figure that when it's gone down quite a bit, that will be the time to invest in real estate.

Most of my money's in Treasuries, waiting for the time I can put it somewhere better.
I've also allocate a small portion of my assets to less certain but more potentially profitable investments . . . .
Lot's of folks think gold is just at the start of a bubble that could go to $3000/ounce or higher, so I've got a portion of my assets there.
The yen seems like it might go up when/if the carry trade unwinds, so I've got a bit there.

What you really want to know, fourthirtysix, is the economic future . . . and predicting that is about as reliable as long-range weather forecasting.