Wednesday, December 10, 2008

Asset Classes Where Should You Go?

Where should you put your money during tough economic times? A friend of mine recommended buying cattle, hogs, and natural gas. He is a pharmacy student who doesn’t know a whole lot about the market, so his recommendations were mean to be a joke.

In tough times like these, should we follow the actions of real professionals? Another Omaha-an, Warren Buffet, knows quite a lot about the nuances of the markets and investing, right? So… what about following his investing pattern?

A few days ago, Berkshire’s 13-F was filed. This document, filed quarterly with the SEC, shows current holdings of institutional investment managers at the end of each quarter.

His top holdings on 9/30 (in no particular order) were: Wal-Mart, Wells Fargo, US Bankcorp, Wesco Financial, Johnson & Johnson, Kraft, Proctor & Gamble, and Conoco Phillips.

From 9/30 until 11/18, these stocks were down 20% on average.

Not exactly the return I was looking for. If we can’t follow Warren Buffet, a man that Nebraskans and many other folks around the world consider to be the top dog in the investing realm, should we just give up and buy the whole market?

Well, if we bought SPY (the S&P 500 ETF, similar to an index mutual fund) on 9/30, we would be down 25%. Hmmm. So diversifying actually made things worse. What about buying real-estate?

RWO, an ETF that tracks the Dow Jones Wilshire Global Real Estate Securities Index, is down 44% from 9/30. Now, if you were to buy tangible real-estate, like a home or a strip mall, the value of your investment may not be down this much, but a 15% drop from 9/30 until now wouldn’t be a huge exaggeration.

So, lets’ revert back to my pharmacy student turned investment advisor friend. From 10/1 to 11/18, the live cattle, lean hog, and natural gas December 2008 contracts were down 4% on average.

This example is supposed to leave you confused, which is the point. Few people can make sense of investment opportunities in this senseless and extraordinary market. In my example, the person who was least informed has shown the best results. The dream team of investing has been left as confused as us everyday novice investors.

So maybe you should look into buying lean hog futures, as my friend recommended. Or maybe you should see if there is a trading opportunity that can be exploited by tracking the relationship etween the humidity index and the NASDAQ. Whatever I do, it doesn’t seem to mater. Save for a sturdy bed mattress, a safe place to store money is hard to find.

However, an opportunistic like me will keep dumping high percentages of my paycheck into diversified ETFs. If you have a better idea, please let me know. For example, if you find a positive relation between the degree of frost on the ground relative to small-cap technology stocks, at this point I’m all ears.

Aaron Konen

1 comment:

Anonymous said...

Well, I can say you did not mention one asset class that I would recommend and that is gold and silver mining companies. Gold and Silver are down 35 and 50% respectively from their high's and holding up extrememly well poised for a large bounce in my CU Economist educated opinion. Further, Gold and Silver miners are down anywhere from 60-95% in value which doesn't make a whole lot of sense as two of their biggest input costs labor and fuel are getting much cheaper as we speak which goes straight to the bottom line.

Mining shares have responded very well over the past few weeks and should decouple from most asset classes after the Obama/January Effect shaping up at the front of 2009.

Mining shares is a great way to buy gold and silver something the Bible even shows us have been used for currency and trade for almost 5-6000 years now.

If only our government would protect our currency like they protect themselves and their donors....