alternative places to invest

7

Lies, Hype, and Profit:

Investing around home may be ok if you have genuine knowledge that biz is good. Otherwise it can be putting too many eggs in one basket - like the Enron employees that put only Enron stock in their IRA only to evaporate along with their jobs. Maybe a fund of local banks across the nation?

Anyway assuming you don't want to speculate on recovery of commercial reits or something, you did miss the tricky category of commodities. Things with industrial use such as palladium (pall) or cotton (bal) or whatever is in

A lot of experts over the years have stressed that the best time to buy stocks is NOW, because there will always be ups and downs, and getting in the game early is a good idea. And so much the better if you get in during one of the "down" periods. According to that wisdom, it would seem that right now, today, would be a great time to invest in stocks, and real estate too.

But it is interesting that you don't hear that advice much at the present time. In fact, if I recall correctly, you hear that wisdom most often during one of the "up" periods. People, even knowledgeable people, are now talking a lot about bonds and safe investments. Somehow it seems that the present-day part of the cycle usually turns out to be "special," unlike any previous episode, either at the bottom or the top of the market.

A breakdown of peoples assets show that as the main places people are invested.

Having your own business is a good alternative with many side benefits like being able to work 60 hours a week.

Buying collectibles like art and wine is a possibility, but isn't practical for most people.

-- Ron

There are stock options - puts and calls, spreads and straddles. People who are not knowledgeable about stock options often have the unfounded opinion that they are *always* highly speculative, but this is not necessarily the case. Options are available in a wide variety of prices, ranging from "in the money" to way *out* of the money. These range from highly speculative to highly conservative, and everything in between.

Also note that an option transaction actually involves two transactions - one transaction creates or sells the option, the other transaction purchases the option. So, they more speculative one of those transactions is, the more conservative the other transaction will be.

In any event, you would definitely need to do some considerable reading on this subject before attempting to trade stock options.

Those who were not diversified in stocks may have lost their shirts. But the long-term investors who were and remain diversified, and have been in the market at least six or seven years, are likely doing fine.

Do you understand what it means to hold stocks? If a person does not understand this, then he or she will never be comfortable when the market declines for the short term, and stocks are probably a poor choice for them.

I gotta go with Elle and Don on this one.

The bottom line is that capital (money) is a store of value and a factor of production. Making products and services is the objective, not "making money." Only the U.S. Mint makes money.

Owning a stock is owning a share in a company which is a producing enterprise. There are great companies with solid products and services. Lewis Rukeyser had a cool story about two brothers, investing the same $$ in stocks each year. One was lucky, and always bought at the lows. The other was unlucky and always bought at the highs. The unlucky one got started ten years before the lucky one did. After 30 years, the unlucky one had more money invested. Interesting little story.

One can start one's own company, but it is critical to do your homework since something like 90% of all new businesses fail within the first two years - because they never had a business plan to begin with, never did their research on demand for product and services and even if they got plain lucky on that, never organized, never had adequate resources to produce (you must know what you're doing and be able to do it). There are lots of books on start ups, and some elect to go with a franchise - the business plan is all in a manual.

Investing in your home town is admirable, and Food Lion got its start that way, I believe, tapping locals for five thousand each - that seed capital came to be worth a couple of million for those who took the plunge.

Well said, before investing in stock market beware of long term investors. They can raise or down the market.

Practically every year of the last 30 any half way attentive international investor could double or triple sp500 positive returns by using foreign mutual funds or etfs. I say half way attentive because you didn't even have to cherry pick the best - I have lived that and retired very early. It doesn't come about by sleepwalking with the large cap US and related intn'l diversified area. Target sectors of regions for example. Certainly emerging market funds have been consistently up by hundreds of percent every few years, although notice I said not to be extrapolated now.

I contest every aspect. Japan stock market has fallen by 75% in last

21 or so years! It's "tiny" impact comprises until recently the second largest market cap in the world! Broad index funds are cap weighted, so there has been a great proliferation of "asia ex-Japan" funds and the like. International funds tend to be largely weighted not only by Japan but England, which a discriminating investor has avoided. Thus that whole aging large cap soup of US/UK/Japan/etc is not representative of intn'l opportunities, rather it is the hall of shame we have soared over.

You can verify it by checking how only the UK and Greece had significant defense budgets in the EU, and both of those were suddenly slashed. The US maintains a growing responsibility with about 24% defense budget. Meanwhile there is a book out urging the US to take up the Euro example of about 10 weeks holiday off per year, free college and generous welfare etc because it appears to work so well in Euro economies. Now that the veil is off, and non teutonic eu countries such as UK are facing stagnant growth, hardly encouraging for investing in a cap weighted Euro investment. Well, maybe so, if they can continue to freeload defense responsibilities for the world democracies, just like in their 1930's debacle.

The underwear price has been greatly lagging the cotton price rise, even when you consider it is a fraction of manufacturing cost. Do you understand the pipeline delay effect? Cotton can drop in half and underwear price will still rise and not drop. Are you saying underwear appreciation won't exceed the total return of treasuries, and rampant wage inflation in the SE Asia manufacturing region will have no effect? Why on earth try to score points about underwear?

That is the path to avoid mistakes, but to remain a wage slave. It assumes the reader is either uncertain or has a reckless streak that needs to be restrained. On the other hand, the reader can spend a few years thinking big yet experimenting with a tiny fraction of your portfolio - just enough to keep your interest and honestly recognize pain vs gains from it. May find one has a talent for some investment areas and a good enough track record to seriously pursue it.

I thought my earlier posts had been laced with enough caveats so that Elle or others needn't go on the warpath, at least about underwear .

I do not consider the last 20-30 years relevant here, first because I think the number of international funds available 20-30 years ago was minuscule compared to the number available today (with corresponding higher cost 20-30 years ago), and second because I think that U.S. based companies tended to become exponentially more exposed to international.

You fail to demonstrate that Japan's crash affected the S&P 500, for one.

Financially speaking, I do not think your political views are useful in this forum.

You also omit how the U.S. defense budget helps the U.S. economy.

I am saying to the OP: Diversify. Do not try to time. Invest for the long run.

There's an even stronger statement than that...a buy and hold investor in a balanced index fund should today be at an all-time-high net worth, _regardless of when they invested_. Except for a few days over the past week or so but let's ignore that.

Just one example:

&b &c96&d
&e=1&f 11&g=m Look at the "adjusted close" column which factors in reinvested dividends. All the numbers in the past are lower! Do some math to see how the long-term returns look. How many investors beat that?

You can do the same exercise with some all-stock index funds to get a sense of how that's done (for that, the exact timing of your initial investment is a huge factor).

The whole "decimated retirement savings" vein in the media has missed this basic point, that a bland 60/40 stock/bond mix has done quite well. So before giving up on stocks & bonds in favor of the latest junk pumped out by Wall Street it's worth considering whether they've failed to build wealth.

-Tad

all-time-high net worth,

example:

&b &c96&d
&e=1&f 1... Nice addition to the thread.

Right, I just threw in SPY (S&P 500 index fund) to the yahoo site above, and the results are as you suggest: Not as good as the stock/ bond fund and timing dependent.

Granted this is a comment on coming out ahead after a bubble bursts and/or during a recession, no? When times are good, my eccentric relative will likely start talking again about how he is laughing himself to the bank, because he stuck with stocks FTW (for the win), though having a long time horizon.

Really the bigger objective is sleeping well at night. I sleep fine with my more conservative approach (significant CD and similar proportion). The relative sleeps fine in nearly all blue chip stocks (but he has way more net worth than I). Orman sleeps fine with nearly no stocks (even more net worth). 'struck is happy in cotton.

[bears repeating IMO]

That was the premise of a fund that has long since ceased to exist, but which I found quite interesting. Papp America Abroad, run by L. Roy Papp in Phoenix. Papp sold his funds to Pioneer, I think, back in the early 00s, and he himself must be about a zillion year old now. But his premise was that large US-based companies are the best way to invest overseas inasmuch as you get US based accounting (which, contrary to such disasters as the recent financial crisis and such general outliers as Enron, is still pretty much the best in the world) and exposure to all the opportunities in other countries as profitable managers of succesful large companies here are capable of.

I'm not sure I completely buy the premise, but it's certainly true that the world, especially at the large-cap level, is very small. Companies like Intel, for example, make very substantial portions of their profits overseas.

Of course, recently, it has seemed that the world on the whole is more correlated than, perhaps, it was as recently as 20 or so years ago. That's a discussion for another time, I guess.

But if you're looking for non-correlated asset classes to balance against US equities, and you want to stay in equities, I think you have to look at small-cap and emerging markets. The latter, on the large-cap level, are generally pretty tightly tied to commodities and may be more highly correlated with the developed world, too.

Maybe. The thing is that a 60/40 equity/bond portfolio simply has a better *risk-adjusted* rate of return than an all-equity portfolio even if an all-equity portfolio has beaten it on an absolute basis over some long-run period.

And that risk-adjusted part is essential. It's essential to people who have trouble staying the course. And more than that, it's especially essential once you start plotting out ways to extract a retirement from a portfolio. Low volatility has huge value. And a 60/40 portfolio, over the last few decades, has captured almost all the long-run returns of an all-equity portfolio with a very substantially lower standard deviation.

15-year standard deviation of 10.09 and a 15-year total return of 6.91%

The total stock market index (VTSMX) has had a 15-year total return of 7.05% (which beats the SP500, btw), but with a 15-year standard deviation of 16.76 (very slightly higher than the SP500).

I had some 30 or 40-year numbers but they are not handy. IIRC, the standard deviations were similar, but the returns diverged a bit more (the 60/40 got was beaten by the all equity portfolio by a more substantial margin, but still beat the all-equity on a risk-adjusted basis quite handily).

Whether any of that is repeatable, of course, is questionable. Current interest rates make bonds, at least anything with a maturiry of more than a few years, look a lot more risky than they've looked in a long time.

But it's certainly worth remembering when builting an asset allocation.

How wireless and internet communications have facilitated global financial machinations, and more cheaply than ever, in the last 15 years or so was at the front of my mind as I wrote about how I think U.S. large caps tend to have a larger than ever before international presence. Of course I expect this trend must be true of any large business regardless of whether it is U.S. based or not.

Then again it may be worthwhile to reflect on impact on stocks of the telephone in the early 1900s (I think) and other communication devices over history. I know this is nothing profound. Maybe what would be more worthwhile is to reflect on how there actually may be a limit to market expansion at this point. I am not expecting life on Mars. On the third hand, China is so rural and India so poor that I think it is safe to say my Philip Morris, for one, has plenty of room to grow more.

While I am not a fan of international investing, I do agree with Elle's comment on large cap US stocks having international exposure.

Here's an observation from last week's trip through Frankfort Germany's huge airport. The largest eatery in the airport, and the eatery with the longest lines, was McDonalds and it wasn't even close. Further, our Delta plane was at 100% capacity on its run from Frankfort to Atlanta, as was US Air's offering to Charlotte.

It was obvious to me that those three companies were participating in those economies (for better or worse).

Don't forget massive improvements in transportation efficiency, too. As big a deal as the internet is, the modern shipping container (and computerized tracking of inventory - just what is actually in a given box) may be even more important.

There's certainly a lot of economic growth poised to take place in some parts of the world with vast populations. How to find a way to profit from that, however, is not necessarily an easy question. But no doubt McDonalds, for example, will find a way.

Fascinating.

I worked briefly on container ships over 30 years ago, so I do not think the impact of this more efficient mode of transportation of goods is so new. Wiki elaborates. Nor do I think container ships' impact is as profound as the last 20 years of computer-driven communications and (agreed) inventorying etc. Just saying.