Wall Street History

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Wall Street History

06/07/2002

Just My Opinion...I Could Be Wrong

Folks, I have been traveling the past two-plus weeks in Turkey,
Slovenia and now Austria. Initially, I thought that I would pick
up some material along the way that would be appropriate for a
Wall Street History article, in line with others I have done, but,
alas, that wasn’t to be the case. So I ask your indulgence in
waiting one more week before resuming the column in its regular
format.

But in the meantime, I did come across one item in the May 31-
June 2 European edition of the Wall Street Journal (and I’m
assuming it was in the main edition as well around the same
time) concerning “Crisis Investing.”

Suffice it to say, I can punch a ton of holes in this one, as the
author of the piece goes to great lengths to give four crisis
investment scenarios; if you believe, for example, that there will
be another serious terrorist attack on the U.S., or, that the U.S.
invades Iraq.

What I find to be ridiculous are the solutions. Without naming
the strategists or advisors, we have some of the following ideas.

--Put 50% in gold and other precious-metal shares.

--Purchase 20% in U.S. Dollar Index put options.

--Unload risky assets and stocks, like low-grade corporates.
[Nothing wrong with this, necessarily, but you should have
already done it...and in the interests of full disclosure your editor
still has some “junk” bonds of his own.]

--Put 40% of your money in the Japanese stock market.

--Buy FT-SE put options on the U.K. equity market.

--Invest in hedge funds.

--Buy a “long-short” equity fund. [Similar to a hedge fund.]

--If you aren’t too nervous, invest in “quality blue chip stocks.”

--Buy Swiss bonds or Swiss-Franc deposits.

--Buy energy stocks in case we invade Iraq.

Here’s MY point. Some of the above may make sense for more
sophisticated investors, but if you are relatively new to the
investment game, or even if you are somewhat experienced, what
the heck is wrong with the following...CASH!!!!

Not one of the experts in the Journal article recommends it,
outside of a gentleman who suggests putting a few assets in
“short-dated government paper, including U.S. Treasuries.”

I could go into great detail on the stupidity of some of the above,
but why bother? If you aren’t sleeping at night, and, knowing
that the U.S. equity market is, by most historical measurements,
still grossly over-valued, particularly given still rosy earnings
expectations, throw the bulk of your assets in money market
funds or short-term Treasuries (6 months or less, for example), or
CDs and relax as much as you can given current world
tensions.

This uncertain environment will NOT just go away in a few
months. It is here to stay, conceivably, that is, for years (if not
decades). You can try to “trade” it, as yours truly will do in
sectors like energy from time to time, but if you are a relative
novice, at least until you have more confidence in your own
investment ability or that of your financial advisor, do the only
prudent thing. Sit it out, largely in cash, until you feel more
comfortable doing otherwise.

[I am well aware that cash right now doesn’t pay, i.e., the interest
rates are extremely low. But you still have your principal and
rates will inevitably rise later on.]

In all sincerity,

Brian Trumbore

Wall Street History will return in its regular, albeit quirky,
format next Friday.

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