Definitely A Challenging Time To Be An Investor

Yesterday I had an email exchange with someone in another part of the business and he concluded the thread by noting that it is “definitely a challenging time to be an investor.” There are challenges but of course that is always the case. The current set of challenges go back before New Century went bust. There were indications of trouble brewing in the US from early in the last decade.

I certainly had no inkling of the magnitude of what was coming but markets and stats warned of some sort of trouble. From the equity market, the financial sector grew larger than 20% of the S&P 500 Index (this is less reliable in smaller foreign markets). Socially there were countless TV shows about house flipping. Stat-wise it was clear banks were taking on more risk, it was clear people were taking more risk buying multiple homes, no down payments, mortgage equity extractions and so on.

Some of the behaviors were repeated from just a few years earlier. I remember a couple of different stock market TV series; I don’t remember the names of the shows but there was one on Fox with Giancarlo Esposito. Just as day trading and internet stocks became all encompassing social phenomena so too did house flipping and condo speculation. I don’t think this is the case with treasuries and gold but if you think it is the same then you should take some action.

The challenges now are immense. It is far from an original thought to think that no one in charge knows what to do. To paraphrase someone; business don’t need more loans they need more customers. I have never been in the Armageddon camp and I am still not, instead my thoughts from the start of this site has been the US will increasingly become a less compelling investment destination and admittedly the cliff was steeper than I imagined it would be.

However where there are challenges there is opportunity however not much in the way of shortcuts in pursuit of opportunity. Obviously there is no way to know what people read as they read this site but I view the opportunities as being immense even if not with many US stocks. To the extent that immense is the correct word then the US’ issues notwithstanding there is reason to be very optimistic.

I also think it is pretty easy to know where to look. Between healthier countries and stuff that the world has to have, that should keep most plenty busy. “Plenty busy” is important because I think the task is pretty big. Yesterday I read two articles on rare earth metals and I’ve read a few other things over the months, probably similar to many other people. If you’ve done any looking into this niche you know there is an awful lot to go through. There are the actual elements and what they do, I believe there are 17 of them. Then there is the politics, China has the most supply readily available but there are supplies in the ground elsewhere but the companies are speculative of course. This is an important niche but there is a lot to study.

Have you done any serious research into this theme? How many others are out there that you have or have not researched? Countries are a little easier to learn about, learn about the larger companies in the benchmark index for a country, understand what types of stocks best capture the country and commit to a stock or two, or depending on the make up of an ETF, commit to an index fund for the country.

There are probably two ways to come away from the above commentary, assuming you think it holds any water at all. I think the two possible reactions would be to be overwhelmed or to be invigorated by the challenge. Above, where I ask how many themes have you researched and how many have you not, did you come up with a number? Whatever number anyone might come up with they cannot realistically learn about all of them. This might help anyone who might think this is overwhelming.

As a practical matter for portfolios above a certain dollar size I think a large portion of a portfolio can be devoted to smallish allocations to various countries. Something like 8-9 countries at 8-9% can work out to 70% of an equity allocation with the rest maybe going into themes like water, mining of some sort of resource, infrastructure or maybe a defense contractor to name just a few. There are plenty of ETFs to accommodate and while there are no shortcuts there can be some comfort with the products.

Still though, plenty of work. Overwhelming or exciting is up to you but the solution IMO is more about time available to spend than anything else.

12 Comments

  1. First good post

    Second we turned Japanese several years ago

    Reply
  2. Regarding gold,

    First,I am receiving more and more in the mail flyers that want me to convert my worthless money into their priceless gold. I recall the same experience in the 70s and how that ended.
    Second, in 20 years the earth will have over one billion folks over the age of 65. Seems there should be an investment theme there somewhere, don’t you think?

    Reply
  3. there used to to be many differences between the US and Japan, there are now fewer differences. the US was faster to try to fix it (insert nervous smile).

    assuming your number is correct about 65 year olds then of course there is a theme; maybe replacement parts, diabetes, medical tourism and so on.

    Reply
  4. I agree about the gold ads, but that does not mean it will not go a lot higher before this ends.

    As for over 65 – MOTOR HOME sales – I just could not resist

    Reply
  5. anon 6:17 that is a world class heckle; maybe the RV could tow a trailer with jet skis, ATVs and a harley. LOL

    Reply
  6. Your overall point in the blog post is good, but I dunno.

    Let’s see: people have to work 24/7 on their career (so to speak), raise a family, be active in their community (isn’t that a necessary and needed part of living in a democracy?) and now that they are being pushed by their employers into 401K plans (or worse, no plans), they have to become full-time investors.

    It’s a bit much to think the average Mary Jane or the average Joe will research rare earth, or run a comparison between, say, Chile and New Zealand.

    You might reply that, well, that investment approach is what’s truly needed. And I don’t entirely disagree. But if that’s the case, then a lot of people (maybe including me) are gonna be in a lot of trouble.

    Rare Earth? Yeah I loved their music.

    “I Just Want to Celebrate.”

    BillM

    Reply
  7. BillM,

    If you are frustrated that this is earth and not paradise I understand, but that is not Rogers fault. It was a good post

    Reply
  8. To me, the important thing here is separating a fad from a theme. It’s also the most difficult.

    I agree with anon 5:57–the greying of America/the world is a mathematical certainty, and with that will come all the attendant healthcare investing opportunities. One advantage of playing in healthcare is that many of the companies pay dividends, unlike some of the more faddish upstarts that aren’t yet even profitable.

    Nice blog today, Roger.

    Reply
  9. I agree with the greying of American theme. That’s why I own NHI which has been stellar and SNH which has been so, so. They also both pay good dividends. I may also take a nibble at SYK as a body part replacement play (hah!).

    Reply
  10. My previous high for the year was a little over 8% gain, I forget exactly what the actual high was, but I know I was lagging the S&P.

    Now I am ahead of the S&P and again a little over 8% gain. I know the market can turn around when ever it wants to, but I think this was a correction and I believe it is over.

    we will see

    SEG

    Reply
  11. I am in Hong Kong 10/3/10 and the daily paper, South China MOrning POst had a full jobs section on Sat morning, lots of work over here….nothing like my usual US papers, NOTHING.

    Seeing this really hits home.

    Reply

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Definitely A Challenging Time To Be An Investor

Yesterday I had an email exchange with someone in another part of the business and he concluded the thread by noting that it is “definitely a challenging time to be an investor.” There are challenges but of course that is always the case. The current set of challenges go back before New Century went bust. There were indications of trouble brewing in the US from early in the last decade.

I certainly had no inkling of the magnitude of what was coming but markets and stats warned of some sort of trouble. From the equity market, the financial sector grew larger than 20% of the S&P 500 Index (this is less reliable in smaller foreign markets). Socially there were countless TV shows about house flipping. Stat-wise it was clear banks were taking on more risk, it was clear people were taking more risk buying multiple homes, no down payments, mortgage equity extractions and so on.

Some of the behaviors were repeated from just a few years earlier. I remember a couple of different stock market TV series; I don’t remember the names of the shows but there was one on Fox with Giancarlo Esposito. Just as day trading and internet stocks became all encompassing social phenomena so too did house flipping and condo speculation. I don’t think this is the case with treasuries and gold but if you think it is the same then you should take some action.

The challenges now are immense. It is far from an original thought to think that no one in charge knows what to do. To paraphrase someone; business don’t need more loans they need more customers. I have never been in the Armageddon camp and I am still not, instead my thoughts from the start of this site has been the US will increasingly become a less compelling investment destination and admittedly the cliff was steeper than I imagined it would be.

However where there are challenges there is opportunity however not much in the way of shortcuts in pursuit of opportunity. Obviously there is no way to know what people read as they read this site but I view the opportunities as being immense even if not with many US stocks. To the extent that immense is the correct word then the US’ issues notwithstanding there is reason to be very optimistic.

I also think it is pretty easy to know where to look. Between healthier countries and stuff that the world has to have, that should keep most plenty busy. “Plenty busy” is important because I think the task is pretty big. Yesterday I read two articles on rare earth metals and I’ve read a few other things over the months, probably similar to many other people. If you’ve done any looking into this niche you know there is an awful lot to go through. There are the actual elements and what they do, I believe there are 17 of them. Then there is the politics, China has the most supply readily available but there are supplies in the ground elsewhere but the companies are speculative of course. This is an important niche but there is a lot to study.

Have you done any serious research into this theme? How many others are out there that you have or have not researched? Countries are a little easier to learn about, learn about the larger companies in the benchmark index for a country, understand what types of stocks best capture the country and commit to a stock or two, or depending on the make up of an ETF, commit to an index fund for the country.

There are probably two ways to come away from the above commentary, assuming you think it holds any water at all. I think the two possible reactions would be to be overwhelmed or to be invigorated by the challenge. Above, where I ask how many themes have you researched and how many have you not, did you come up with a number? Whatever number anyone might come up with they cannot realistically learn about all of them. This might help anyone who might think this is overwhelming.

As a practical matter for portfolios above a certain dollar size I think a large portion of a portfolio can be devoted to smallish allocations to various countries. Something like 8-9 countries at 8-9% can work out to 70% of an equity allocation with the rest maybe going into themes like water, mining of some sort of resource, infrastructure or maybe a defense contractor to name just a few. There are plenty of ETFs to accommodate and while there are no shortcuts there can be some comfort with the products.

Still though, plenty of work. Overwhelming or exciting is up to you but the solution IMO is more about time available to spend than anything else.

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