Monday, January 3, 2011
A New Year To Invest? Save? Spend? Be Taken?
Today starts a new year on Wall Street and everyone that has a few coins to rub together can have at it. There are all the institutional clients of the Wall Street bankers and money managers that really have no choice but to invest in the investment game. Why do they have no choice? They have no choice because they either hire and/or have in house actuaries that tell them how much they need to make on their investments in order to meet their fiduciary obligations in the year and years to come. Those that are managing in the billions of dollars, as many public funds are, have a number of "games" they can get involved. But, since it is the beginning of a new year, let us review a few of the more popular "games".
Well, we all know about the stock market and investing in common stock of corporations both domestic and international. Several of the large pension funds realize that there are economies growing at a faster rate than our own and have directed their portfolio managers to invest a piece their equity allocation into international equities. Then there is the fixed-income market and all the various fixed-income products on the shelf. Treasuries, government agencies, corporate bonds and then those asset-backed bonds that gave everyone so much trouble in 2007-2008. But, the fun part of investing if you are investing billions is the private equity market. Here large funds can put their money to work with some of the smartest people in the room. Private equity is a game that permits these large funds to get involved with new and up and coming companies and technologies where the potential, if they hit a home run, is high rates of return, or as it is referred to as return on equity or total rate of return. These private equity funds may invest here in the United States or around the world. And then there is the infamous hedge fund that has been maligned in the press. Hedge funds can make lots of money, but they can also lose lots of money in a very short period of time. Then there are all the alternative investments that the mind can think up. Yes, we forgot to mention real estate and forestry, coins and gold, and beanie babies and baseball cards, but the one I like best is the art market.
Paintings have become for those that can play at the upper levels of investing, a market that, so long as you don't put your hand through it, will retain some value. The art market will fluctuate like any other market that from time to time gets over priced. But, with the art market, you simply hang the painting(s) on your wall and wait for the market to bounce back. And, in the mean time, you look at your art purchases that may run into the hundreds of millions of dollars. You know, the neat thing about the art market is that new young and old artists are being discovered every year, and with their discovery, the price of their works go up at auction. You can be a small player or a large player, but regardless of the size of art you buy, you can enjoy what you buy until you sell it. You sure can't say that about the money you lose in stocks, bonds, hedge funds or private equity.