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South Burlington, VT

Value Creation Blog

Are You An Investor Or Speculator?


This is a question that I think everyone who has money to invest for whatever reason needs to ask. Your answer will help you decide what types of investments and investment advisors you might want to use.

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Topics: investment management, alternative investments, investing, investing research

Investment Behavior and Alternative Investments

Alternative InvestmentsOn January 15, 2011, my partner, Josh Patrick posted a blog here entitled “Why I think Alternative Investments Make Sense”.  I whole heartedly concur with his observations; however, in implementing the strategy, I have found investor behavior can get in the way of allowing the strategy to work.

Here’s what I mean.  Most of my clients started investing in the 1980’s and 1990’s, somewhat concurrent with the proliferation of 401k plans.  Most were successful, accumulating account values at a steady pace.  The financial pundits were espousing a “new normal”.  Index funds were the new hot topic – making money was perceived as “easy”.

Well, it should have been.  From 1982 to 2000, we were in a secular (long term) bull market averaging almost 17% per year.   This is the experience of most investors, and it is the experience that framed their investing expectations going forward.

But what most fail to recognize is that in the prior 16 years from 1966 – 1982, we had a secular bear market, losing almost 22% over those years.   Sure, there were 6 cyclical (short term) bull markets within this period, but in the end the market was down.  If you had invested in an S & P index, you would have been negative after 16 years.

This experience of 1982 – 2000 blinded many investors to the risks of the market.  Then, in 2000, the Tech Bubble bursts, 9/11/01 occurs and before you know it the market lost almost half of its value from 2000 – 2002.  But the market rebounded and most of the losses were recovered from 2003 – 2007.  We’re back to the “new normal”, right?  Well 2008 shook us to our core, the market declining almost 38%.  Based on the analysis of Crestmont Research, we are in the midst of another secular bear market, similar to 1966 – 1982.

So, back to the alternative investments, i.e. absolute return managers.  After the rollercoaster ride of the past 10 years, many of my clients embraced the absolute return methodology for a portion of their portfolio.  The philosophy of reducing volatility and potentially making money by not losing money resonated with them.  But wait, we just experienced a 2 year cyclical bull, gaining back most of 2008’s loss.  Clients responded – “why isn’t my absolute return manager getting me the same return?”  Investor behavior is still shaped by the expectations of 1982 – 2000.  What they forget is that their absolute return manager didn’t lose 38% in 2008.  We are all learning.  Ten years of a secular bear market is still not enough to erase the expectation that the market “generally goes up”.

Volatility is the enemy of long term investment success.  That’s why you see most endowment funds with a significant portion of their assets in Absolute Return strategies.  Hopefully, we can learn from them.

This is a registered website, which means that we cannot 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.

Rick Harris
(518) 608-8939 ext. 21

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.

Past Performance does not guarantee future results.  

Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC.

Stage 2 Planning Partners and NFPSI are not affiliated.

This article is published for residents of the United States only.  Registered Representatives and Investment Adviser 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.

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Topics: asset management, financial planning, wealth management, alternative investments

6 things an alternative investment manager can do

Burlington Investment ManagerOne of the good things that investment managers do for their Clients is provide individual security selection and management.  What this means is they take into account individual needs and wants when they build an investment portfolio.

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Topics: asset management, financial planning, wealth management, alternative investments

Is there such a thing as guaranteed investments?

Guaranteed InvestmentsI keep hearing from Clients that they want investments that have a reasonable return and are guaranteed in that they will never lose money.  In essence they want to know if there is such a thing as guaranteed investments.

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Topics: wealth management, investment management, annuities, alternative investments

Why I think alternative investments make sense

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.

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Topics: asset management, wealth management, alternative investments

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