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Value Creation Blog

Why I think alternative investments make sense

Posted by Josh Patrick

Alternative InvestmentsAlternative investments often bring up visions of high risk investing that can leave you with no money.  I have a different view.  For me, alternative investments mean using a manager that has a number one goal of not losing money.  The second goal they have is to get a positive return when market situations allow the manager to do so.

The type of alternative managers I like are what is called absolute return managers.  These managers are generally only happy when their investors have a positive return in their portfolios.  They don’t try to hit the ball out of the park and they don’t like to be exposed to large risks.

This doesn’t mean they never lose money, but it does mean that they focus on not doing so.  This is much different than most of the investing community.  The rest of the community often concentrates on beating a particular index they are measured against.  For example if the market is down 20% and they’re down 18% they feel they have done a good job.  You ultimately may have lost a lot of money, but the manager has been successful.

My belief is that our Clients are never happy if they lose money……especially if they lose a lot of money.  For that reason, I’ve adopted the philosophy of an absolute return manager. 

I believe that we are in a secular bear market.  Our definition of a secular bear is when interest rates are low, inflation is low and price earnings ratios are high.  All three things are present in today’s market.  For this reason, I believe that there is danger for large market drops.  As a result, I think it’s important to be defensive and be ready to pull the plug quickly if market conditions move against us.

This doesn’t mean that we’re always right.  It does mean that we are paying attention and that a relative return strategy is more dangerous than in a bull market. 

This is a registered web site, which means we can’t have a response box on this blog.  However, I am interested in hearing your thoughts.  If you would like to give me a call or send an email, I would be glad to hear from you.

Josh Patrick

DISCLOSURE:  Alternative investments involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees  Alternative investments can be volatile. Often managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently higher risk. There is often no secondary market for an investor’s interest in and none is expected to develop. There may be restrictions on transferring interests. These products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally they often entail commodity trading, which involves substantial risk of loss.

Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC. Stage 2 Planning Partners and NFPSI are not affiliated.This site is published for residents of the United States only.  Registered Representatives and Investment Advisor Representatives of NFP Securities, Inc. may only conduct business with residents of the states and jurisdictions in which they are properly registered.  Therefore, a response to a request for information may be delayed.  Not all of the products and services referenced on this site are available in every state and through every representative or advisor listed.  , Inc. does not provide tax or legal advice.  Any decisions whether to implement these ideas should be made by the client in consultation with professional financial, tax, and legal counsel. Asset protection plans should be developed and implemented well before problems arise. Due to the fraudulent transfer laws, asset transfers that occur close in proximity to the filing of a lawsuit or bankruptcy can be interpreted by the court as a fraudulent transfer. Proper structuring of these assets is imperative. Please seek proper legal and tax advice prior to engaging in re-titling/structuring of any assets. Please note that laws are subject to change and can have an impact on your asset protection strategy.

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Topics: asset management, wealth management, alternative investments

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