Investment theory says that one should hold bonds so as to diversify from risk-on assets and be able to buy stocks during a crash by selling bonds. Some financial planners claim that the nature of human capital (a person’s ability to earn income from working) is like a bond if they have a secure, reliable job. Thus some advisors claim that the bond-like nature of someone with highly secure job means that the investor can afford to have a higher than average allocation to stocks because of the bond-like nature of his personal “earned” income from working. However, I disagree. For this to be true the worker must be willing to cavalierly abandon long term goals of retiring
Dow, S&P See Longest Losing Streak Since 2008; S&P Negative for the Year A sell-off removed all of the year’s gains in the stock market. The Standard & Poor’s 500 lost 2.6 percent today. The 30 year Treasury etf TLT went up 3% today.
Investors enquire about asset allocation and black swan investing; will a falling dollar lead to economic collapse; what to invest in case of dollar collapse? They ask: how to protect against dollar devaluation? What happens to my investments if the dollar collapses? I have written “Dollar devaluation investing”.
My fundamental rules of investing:
Excellent article by Bob Carney at CNBC today about Muni bonds. See www.cnbc.com/id/41604499 He basically is holding the same viewpoint as I do, saying that Muni bonds are riskier than they seem. The article mentioned the huge increase in Muni debt. It did not mention that there is also a huge amount of unfunded contingent public employee retiree pension and health care liabilities. For example, California has $500 billion of unfunded pension liabilities that do not show up as debt, which is one-sixth of the nation’s total Muni debt. My philosophy about bond investing is that bonds should be what economist Andrew Smithers called a “sanctuary asset”. This means that bond investors should avoid risk and thus shun junk bonds,
My investment outlook remains unchanged during the past three weeks. I was on vacation in Argentina from 1-22-2011 to 2-11-2011 and having reviewed the market after my return, my opinion remains the same. The market continues to be a gigantic bear market rally with the fundamental value of the SP at 900. There is risk of loss in the equity markets and minimal reason to believe they have upside potential. With bonds at least you get the coupon. EM stocks especially China continue to be at risk due to erratic, unpredictable regulation, montrary polciy, corrpution, etc. Also there is the risk that eventually China’s rapid growth rate will be too big to sustain and will come down to that
The income method of investment analysis is the best way to analyze an investment. This method involves looking at income and using a multiple to estimate the value of an investment. A similar technique is used in evaluating investment real estate or loan applications. Assets that have no income stream such as commodities, collectables, or new dotcom stocks are intrinsically riskier because they lack this ability to be analyzed by their income thus forcing investors to make huge leaps of faith using various dubious metrics. So the type of investors who invest in things with no income stream could be less rational and more emotional than investors who confine their investing to things that have an income stream.