I am a financial adviser. More accurately, I am an investment adviser. My job is to manage the investments that my clients buy based upon the advice that I give. With that responsibility comes an explicit trust between my clients and myself.
They expect me to help them navigate the financial storms of 2009 and to steer them toward the shiny waters of financial security. They expect me to make money for them.
After more than 20 years in this business, I haven't lost my enthusiasm and hopefully am getting better at it every day. One of the tools that helps me to improve my skills is this blog. Whilst I was always an avid reader of financial journalism before starting The Constant Broker, I have probably doubled the amount of reading that I did and still spend a considerable sum on newsletter subscriptions.
So the opinions that I have are my own and are not those fed to me by financial institutions. Herein lies the problem. It is considered negative and dangerous to say that the markets are going to fall further and that everything is going to get worse, much worse before the recovery comes.
My clients expect the best financial advice possible and that advice has to take into account actual market conditions unblemished by misplaced optimism. The crazy thing is, is that this is one of the best times to invest in decades. Believe me, there is no need to sell blue skies when black clouds have solid silver linings.
So what are these silver linings? They are systemic laws of economics. This is not punting. I will not look for value where there is none. But I will look for mechanisms.
For example, I have clients who started monthly savings plans in Q4 last year who are up 60% or more since. This is because they bought into funds on a monthly basis just before the markets crashed and so have benefited from dollar cost averaging through October and November. However, I also have clients who bought in Q1 2007 who are up in excess of 40% since then. This is because we chose to switch all of their very profitable equity funds into US dollar deposits in August 2008 and buy emerging market funds from September.
Buying monthly into these markets works but to do it properly still involves management. We are in a bear market rally and so taking profit makes sense. I'll switch to cash again but this time probably Euro or Sterling. The dollar cannot sustain its value due to the sheer amount of fiat money being printed in the Feds presses.
The dollar will fall in value and the cost of commodities will rise when that happens. So I'll transfer new monthly contributions into buying oil and gold funds.
This is not guess work. We have made a good profit from emerging markets and so taking profits only makes sense.
If the world economies reflate, then they will also inflate and that will push the price of commodities up and the dollar down. It's just basic financial mechanics. To then invest new money into where the next stage of the recession will go, only makes sense.
Lump sum investments are different.
For nearly a year, my clients and I have been holding large deposits of Yen and the gold ETF (GLD). This has been very profitable. Gold has offered stability and has protected our dollar based portfolios against adverse currency movements and the Yen has benefitted from dollar weakness.
We were ahead of the curve in 2008 and have been so again in 2009. I did not invest my clients money into the bear rally because I have a duty to preserve capital. I stayed with that belief and will continue to do so. Bear rallies are blind alleyways. The only way to get out is to retrace your steps back.
I remember back in the 1990's when we would wait for AT&T or GM to have two positive quarters. They were called bellweathers. Bellweathers no longer exist as corporations anymore. Corporate America no longer has the power that it once did. What helped make American corporations great was their influence in Washington. Over the years the lobbyist industry collected billions of dollars to help corporations exercise influence with Congress. Now that their manufacturing bases are in Asia and other emerging markets, that influence has waned.
The real bellweathers in the 21st century are commodities. Gold, copper, oil and agricultural softs are more important than Chrysler. So I want to buy more gold, precious metals and wheat via electronically traded funds. ETF's are funds traded on an intraday basis on stock exchanges. They are very low cost and extremely flexible.
We are looking at the Ultrashort Financials as a possible choice.. This run up has been crazy for the banks. It will end and then the descent will begin. The market will be as oversold as it is presently overbought.
Again for empthasis. The funds chosen will be those that will benefit from the market falling and a cheaper dollar.
I think that recessionary markets can be more predictable than those of a bull market. They are more focused and narrow. Therefore they can offer greater focus and clarity. Part of the attraction of investing during a recession is that we know that we need to tick certain boxes to get back to recovery. It is those boxes that we are investing in.
There is an old saying that the pessimist always thinks that things will get worse but that the optimist knows that they will. The optimist is then prepared for when times get better.
So bring on those black clouds. I can hardly wait!
No comments:
Post a Comment