| | | Monday, June 29, 2015 | Issue #2573 | |
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Where Billionaires Stash Their Cash (Legally)
There is a little-known world where billionaires stash their cash. A world where money is kept safe and private while one's returns can often leave the typical U.S. investments in the dust. Well, today, I am going to show you how to access this privileged world through a copy of my book Where to Stash Your Cash (Legally). The book retails for $79 … but I am giving the first 1,000 copies away for free. Click Here to Find Out How to Claim Your Free Copy.
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The Beauty - and Utter Failure - of This Popular Strategy Alexander Green, Chief Investment Strategist, The Oxford Club
 A colleague recently sent me a simple but remarkable investment chart, posted below.
It shows that you could have tripled the return of the S&P 500 over the last 35 years by simply equal weighting stocks (as measured by the S&P 500), bonds (as measured by Barclay's Capital Long-Term Treasury Total Return Index), or gold (as measured by the price of bullion) whenever each of these assets' three-month moving average crossed its 10-month average.
At first glance, it appears to be an easy-to-implement momentum strategy that delivers blockbuster returns with low volatility to boot.
"Wow, talk about beauty in simplicity!" my colleague remarked. "Or am I missing something?"
Yes. Everything, in fact.
The chart is a testament to the beauty of hindsight (always 20/20). But as a forecasting tool, back-testing like this is almost worthless.
Let me show you why... and suggest an alternative course instead.
This chart covers three historic periods that will rarely (and perhaps never) be repeated again.
One is the historic rally in gold from $252.80 on July 20, 1999, to $1,900 12 years later. That's more than a 660% return.
I wouldn't count on gold going up more than sixfold from here. "There's a reason every investment product comes with the same boilerplate: 'Past performance is no guarantee of future results.'
"Because it's true." | |
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(Although I'm sure many gold bugs - especially the ones who thought it was just warming up four years ago - would beg to differ.)
The second anomaly is the period from 2000 to 2009, a down decade for stocks, something that history shows is extraordinarily rare.
But the third and biggest anomaly is the massive bull market in bonds that began in the early '80s when long-term Treasurys yielded more than 16% and was still going strong earlier this year when the yield on the long guy hit an all-time low of less than 2.3%.
Bond yields could go lower from here. But they definitely aren't going to drop 14 points. That means the chance of this strategy generating similar returns going forward is nil.
But here's the larger lesson. Anyone with a big enough database and too much time on his hands can root back through the past and - depending on the dates and the asset classes - find world-beating strategies.
If you had just held bonds from 1980 to 1990, then switched to stocks from 1990 to 2000, then switched from gold from 2000 to 2010, then switched to Swiss francs from 2010 to...
Well, you get the point.
There's a reason every investment product comes with the same boilerplate: "Past performance is no guarantee of future results."
Because it's true.
Or, as Warren Buffett once quipped, "If past history was all there was to the game, the richest people would be librarians."
Diversification is how you limit risk in an uncertain world. The future will play out in ways that you or your advisor can't possibly comprehend today.
That means you need to own (and rebalance) even assets that are wildly counterintuitive: Stocks during recessions. Gold and TIPS during periods of low inflation. Bonds when the Fed is set to raise interest rates. And so on.
It is only when you concede that the future is largely unknowable that you can run your portfolio with a modicum of sophistication.
Why was Socrates the wisest man in Athens? Because - as we learned in Plato's Apology - he was the only one who knew how much he didn't know.
That's still a good starting point today.
Good investing,
Alex
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"It's Like Winning the Lottery!" - Lawrence L.
According to an ABC News report, people are becoming "millionaires overnight." It's happening in Kansas, Pennsylvania, Texas, Oklahoma... All over the country.
One man from a tiny town of 1,458 is now looking "to reap as much as $1 million per year."
How are they doing it? Shockingly, it all comes down to an amazing 94-year-old man's invention. Go here to find out how his invention could hand you as much as $127,000 each year for 45 years. | |
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The longer central banks keep rates artificially low, the harder it will be for them to raise rates. But as investors, the situation is not pure doom and gloom. Far from it. Read On... | |
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With interest rates hovering near zero, investors must diversify accordingly. Two sectors worth exploring? Business development companies (BDCs) and mortgage real estate investment trusts (mREITs). Read On... | |
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For successful investing, diversification is key. But one area where people often fail is in their international holdings. Today, Investment U Plus readers are discovering a fast-rising emerging markets play that should continue to grow for the foreseeable future. To find out how you can get all the details, click here. | |
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