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Oppenheimer Holdings Inc. Message Board

  • superbmindset superbmindset Nov 21, 2011 9:52 PM Flag

    Spread Risk or Avoid Risk?

    I find a hard time convincing myself of the benefits and superior quality of US investments during the past few weeks of sideways movement. I see investors are not patient during these times of underperformance. And as a result, I have fewer reasons to be bullish and do not gain new ones.

    I still think this has to do more with poorly executed monetary policies in the US, than other reasons expressed by mainstream media. I now believe, absent of a QE3-like intervention, a substantial underperformance in US stocks (whether it will be tomorrow or a week or a few months from now is less important).

    I am now, more than ever, convinced of the benefits of geographical diversification. There are opportunities abroad, in Frontier Markets, Emerging Markets and yes, even in Developed Markets like Europe (Sweden, Netherlands, England, etc.)

    Even though foreign markets are inferior to what our firms are offering, their plan is superior in terms of them pursuing more aggressive growth policies than we are. And I foresee they will attract more investors no matter what direction the US stock market is heading in.

    The average US money market fund paying less than 1%, Government bond yields being at the lowest level in 50 years, all this don’t promise savers much in the way of passive income. Yet, investors are still not convinced US stocks is the way to go, no matter how cheap they look historically! Clearly, they want more to compensate for their risk exposure…

    With all this going on, with the Fed believing the economy is stuck in a perpetual “recovery” but also believing that investors will likely stick around until the Fed decides whether to act or not…. Well, I am as impatient as the average investor is today. I believe that if we wait too long, we lose crucial investment assets and it would be very difficult to regain at a later date.

    Many analysts suggest we should spread risk among different sectors, while waiting for signs of more economic growth policies (or as they see it, better news out of Southern Europe). But with stocks trading at R-Squared close to 1, how do you spread the risk (on the long side)?

    To me, there is going to be more than just a change in investment fashions. The old answers to basic investment questions will not work anymore. And besides the tangibles, there are also the intangible reasons, like the sluggish job growth due to international outsourcing…With offshoring and outsourcing showing no signs of slowing down, clearly, no US based job is safe anymore. It won’t be long until US investors subsequently go with a more direct approach by following the job creation regions and try to avoid the risk of the indirect investment approach: the job creators…

    After Note: I hope I am wrong on this but again, I will be very surprised if my suggestion above is proven wrong. Just My Honest Opinion...

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