Investment Thinking “Outside The Box”

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(August 2012)

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Conclusion

It is time to think outside the box. Traditional investment thinking works best in an environment of above average growth, low inflation, and manageable debt levels. Those days are gone and may not return. I think most of us will agree that economic growth is stagnant, real consumer cost-of-living inflation is too high, essentially all debt levels are excessive, and in many cases, unmanageable. The US national debt exceeds $16 Trillion and nobody expects it to be paid back. Yes, it can be rolled over for a while, but it can never be paid down to zero. The debt problem (and its complications) is not going away anytime soon, so it is time to think “outside the box” of traditional investments to pursue other investments that will maintain your purchasing power.

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by GE Christenson – aka Deviant Investor

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Why “Outside The Box?”

Traditional investment thinking says diversify into several supposedly uncorrelated areas and hold for the long term. That usually means something like a combination of growth stocks, income stocks, short-term notes, long-term bonds, real estate, and real estate investment trusts. Have those investments been working for you?

It was recently reported that CalPers (California Public Employees Retirement System) earned about 1% on their investments last fiscal year. Schwab’s “flagship” managed fund earned a bit over 4% annually for the last five years. Vanguard’s many mutual funds have averaged from negative 5% to plus 10% or so for the past five years. I expect that some hedge funds, some managed investment funds, and a few mutual funds did well, but they are probably the exception, and the rest did relatively poorly by following the traditional investment process.

Looking back over the past decade, the traditional investment process has often not done well; in fact, it has probably not kept pace with the real inflation in the cost of living for the average person.

Outside the Box Investment Ideas for Non-financial Professionals

Farm land, an established business, gold coins and bullion, silver coins and bullion, biotech stocks based on new medical technologies, Facebook stock (okay, just kidding…), foreclosed homes and condominiums, inexpensive rental properties, heavily discounted junk bonds, oil ETF, sugar ETF, agricultural commodities ETF, wind energy stocks, Indian and Chinese commodity stocks, foreign currencies, platinum bullion, solar power companies, gold stocks ETF, timber lands, short dollar index, natural gas stocks, uranium stocks, raw land, venture capital funds, and hundreds of other possibilities.

So How is this Useful to YOU?

  • There are many possibilities available to you outside the traditional Wall Street model.
  • All of the above investment ideas, to one degree or another, require specialized knowledge and experience to intelligently buy and manage. If you have that specialized knowledge and experience, then do your best with those less common investments.
  • If not, then stick with gold, silver, and other simple investments that don’t require specialized knowledge. This website will help.
  • Keep in mind David Stockman’s investment focus, “ABCD: Anything Bernanke Can’t Destroy” by increasing the supply of dollars. Other terms for increasing the supply of dollars (usually via computer) are “Quantitative Easing,” “monetary stimulus,” “bond monetization,” “counterfeiting currency,” and “debasing the currency.” The simple fact is that creating currency in excess of economic growth leads, sooner or later, to price increases, a higher cost of living, and declining standards of living since wage increases seldom keep pace with the higher prices plus higher taxes.
  • Politicians and Central Banks will create as much currency as they deem necessary to support the massive debts and other paper investments in the financial world. They might succeed. If this causes inflation and increases your cost of living, it is, as they see it, a small price to pay for maintaining a system that benefits them. Act accordingly!

Conclusion

It is time to think outside the box. Traditional investment thinking works best in an environment of above average growth, low inflation, and manageable debt levels. Those days are gone and may not return for many years. I think most of us will agree that economic growth is stagnant, real consumer cost-of-living inflation is too high, essentially all debt levels are excessive, and in many cases, unmanageable. The US national debt exceeds $16 Trillion and nobody expects it to be paid back. Yes, it can be rolled over for a while, but it can never be paid down to zero. The debt problem (and its complications) is not going away anytime soon, so it is time to think “outside the box” of traditional investments to pursue other investments that will maintain your purchasing power.

GE Christenson
aka Deviant Investor

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