Alternative 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.