Over the weekend someone left a link to a blog post from someone named Tom Drake that you can look at here. I don't know much about him but he lives in Arizona and likes baseball so you gotta like that.
The post in question is interesting to me because I think he is drawing some similar conclusions about the future of investing (there are some differences too, as I read the post) but Tom has been learning about markets since the 1960s whereas I only go back to 1984 (worked in the business full time for a year before going to college).
He articulates a case for a completely different type of portfolio construction focusing on varied things with a more active approach than what most folks probably do. He ponders allocating more to commodities because he says it is a commodity era not an equity and bond era (presumably there is context to this line of thought in past posts). He says to forget stocks and standard bonds but use dividend paying stocks as a substitute for bonds and he likes CEFs and royalty trusts.
I've been on board with the idea of portfolio construction evolving for ages so I agree with Tom on this point. My ideas about how to get there are different (have written about this many times before) than Tom's which does not necessarily make either one of us right or wrong but it is good to see other people writing about this and if it turns out that many of the old norms of investing will no longer stand up you need to seek as many perspectives on this as you can.
In terms of differentiation I would suggest more foreign exposure than Tom mentions in his post, more theme investing, more absolute return and making small allocations (which will require more work). This most important thing will be that we never stop trying to learn.
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11 comments:
Interesting. Though it would seem to be exceedingly volatile. I often think of things like that in terms of "2008" now. He'd have to have gone to cash to avoid being killed.
It seems all you "advisors" have this basic assumption that a "financial portfolio" is needed?
The best way to invest is to invest directly into assets. That is buy things they will go up in value or produce dividends.
The "stock market" is a fools game created to steal your money.
Yes, let's buy houses.
I too checked the Drake blog & continue to think about some of his portf. construction concepts, particularly as he manages a tax-deferred account from which he is required to take distribution as well as non-deferred accounts. New for me was his calculating duration for each investment choice to match his investing horizon (longevity); he referred to borrowing from Hussman for this. His choices, & their rationale, were thought provoking.
Our times do prompt self-analysis. I'm (almost) coming to terms with having been a value investor that can end up as a value-trap investor. You guys with top-down analyses are starting to get to me. (Not sure I wrote that the right way.) Who says old dogs can't learn..... etc.
Hat tip to you Roger for my quandary.
(Retired) Anna in NC
Anna,
Don't fall into the psychological trap of recency. Top down may have worked this time, but has it always? Don't know, but the old adage, "the more things change, the more they stay the same" comes to mind.
A balanced portfolio has held up reasonably well. My guess it would throw off enough income so as to not have to worry esdessively.
Most of these blogs remind me of a daily racing form you get at the horse track. Handicaps, tips, winner, losers ,past performance etc. It is gambling! And it is obvious that allot of these ponies are coming up lame.
Good blog.
I started twice to put my thoughts in but then stopped after re-reading everyone contribution. My thoughts have been expressed by others except I wish to respond to the comment about "solving the worlds problems".
We can offer / submit our thoughts. After watching c-span coverage I have come to the conclusion that many on the hill are not in their field of expertise. On several occasions I have written short to the point blog-like comments to my representatives in DC and have received some replies, one time a phone call. I think our rep's need our input and support now more than ever. We have skin in the game.
As for my investments I have 60-75% in fixed income yielding <5 and the rest in staples, tech, health and 1 bank. I would prefer the opposite allocation but not in this environment.
I am opposed to protectionism. We the world will all lose if we play the protectionism game.
Thanks Roger to you and the rest for a great blog. --Richard
Anon 11:37,
Point taken on not falling for recency & validity of some balance to avoid worry & max income, but I do want to keep learning. (I had to chuckle too about recency, as mostly I'm an old fogey with old ideas like saving.)
Anon 12:08,
I've seen this gambling analogy before. Isn't it possible to be in certain races, at certain times, & keep risk relatively low? I ask as a saver, mainly, & risk-averse. OT: Alternatively, I've just thought of my grandpa who forswore gambling, had 3 businesses bankrupted during the Depression, & who bet $.10 a point on gin rummy 'til the day he died, because it was his game & he knew it & he knew how to win & importantly when to stop. One man's gambling is another....
Anna
I've been following your ideas for quite some time and you must be commended on your thought process.
I agree that future gains can only be had in non-tradtional areas of the market.
I have graphed market "psychological" indicators for the last 35 years. I've been amazed at it's accuracy. These indicators today point to a market of very slow growth over the next 6-7 years. We are at a definite change in attitude today. This is unlike other downturns.
My own thesis is that after we reach 10-15 years of going nowhere, we will begin to re-think the free-enterprise, capitalistic model. We will look at China at the end of this period and they will have achieved success and growth. We will analyze the period leading up to 2008 and keep coming up with malfeasance and excessive greed. At this juncture, we will begin to embrace a more central type of planning.
Your thoughts?
Good article concerning protectionism.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3870089/Protectionist-dominoes-are-beginning-to-tumble-across-the-world.html
-Richard
Anon 7:04,
What we're going to see in the United States is a new majority in the electorate who pays no taxes and is a direct beneficiary of government (if not an outright ward). That will be the tipping point when capitalism becomes unsustainable by government demanding more from business than business can provide its owners. Hate to put politics into the discussion, but to me it seems this is the direction the country is headed. I live in a very poor area of the United States populated with voters who want more from their government in the form of direct handouts. It is scary I tell you, plain scary. They have no idea where the money comes from other than the government. And who can blame them with continuous coverage on TV of incompetent, greedy b****rds getting theirs?
Pray for leaders to deliver us from the impending disaster.
Pardon me for the rant.
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